Problem No. 1 Cash Conversion Cycle Chastain Corporation is trying to determine the effect of its inventory turnover ratio and days sales outstanding (DSO) on its cash conversion cycle. Chastain's 2016 sales (all on credit) were $204000; its cost of goods sold is 80% of sales; and it earned a net profit of 5%, or $10200. It turned over its inventory 5 times during the year, and its DSO was 35.5 days. The firm had fixed assets totaling $50000. Chastain's payables deferral period is 45 days. Assume 365 days in year for your calculations. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. a. Calculate Chastain's cash conversion cycle. Round your answer to two decimal places. Do not round intermediate calculations. b. Assuming Chastain holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. Round your answers to two decimal places. Do not round intermediate calculations. c. Suppose Chastain's managers believe that the inventory turnover can be raised to 8.1 times. What would Chastain's cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 8.1 for 2016? Round your answers to two decimal places. Do not round intermediate calculations.
Problem No. 1 Cash Conversion Cycle Chastain Corporation is trying to determine the effect of its inventory turnover ratio and days sales outstanding (DSO) on its cash conversion cycle. Chastain's 2016 sales (all on credit) were $204000; its cost of goods sold is 80% of sales; and it earned a net profit of 5%, or $10200. It turned over its inventory 5 times during the year, and its DSO was 35.5 days. The firm had fixed assets totaling $50000. Chastain's payables deferral period is 45 days. Assume 365 days in year for your calculations. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. a. Calculate Chastain's cash conversion cycle. Round your answer to two decimal places. Do not round intermediate calculations. b. Assuming Chastain holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. Round your answers to two decimal places. Do not round intermediate calculations. c. Suppose Chastain's managers believe that the inventory turnover can be raised to 8.1 times. What would Chastain's cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 8.1 for 2016? Round your answers to two decimal places. Do not round intermediate calculations.
Chapter6: Managing Cash Flow
Section: Chapter Questions
Problem 9EP
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Transcribed Image Text:Problem No. 1 Cash Conversion Cycle
Chastain Corporation is trying to determine the effect of its inventory turnover ratio and days
sales outstanding (DSO) on its cash conversion cycle. Chastain's 2016 sales (all on credit) were
$204000; its cost of goods sold is 80% of sales; and it earned a net profit of 5%, or $10200. It
turned over its inventory 5 times during the year, and its DSO was 35.5 days. The firm had fixed
assets totaling $50000. Chastain's payables deferral period is 45 days. Assume 365 days in
year for your calculations. The data has been collected in the Microsoft Excel Online file below.
Open the spreadsheet and perform the required analysis to answer the questions below.
a. Calculate Chastain's cash conversion cycle. Round your answer to two decimal places.
Do not round intermediate calculations.
b. Assuming Chastain holds negligible amounts of cash and marketable securities,
calculate its total assets turnover and ROA. Round your answers to two decimal places.
Do not round intermediate calculations.
c. Suppose Chastain's managers believe that the inventory turnover can be raised to 8.1
times. What would Chastain's cash conversion cycle, total assets turnover, and ROA
have been if the inventory turnover had been 8.1 for 2016? Round your answers to two
decimal places. Do not round intermediate calculations.
Problem No. 2 Receivables Investment
McEwan Industries sells on terms of 3/10, net 25. Total sales for the year are $1,465,000; 40%
of the customers pay on the 10th day and take discounts, while the other 60% pay, on average,
80 days after their purchases. Assume 365 days in year for your calculations. The data has been
collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the
required analysis to answer the questions below.
a. What is the days sales outstanding? Round your answer to two decimal places.
b. What is the average amount of receivables? Round your answer to the nearest cent. Do
not round intermediate calculations.
c. What is the percentage cost of trade credit to customers who take the discount? Round
your answers to two decimal places.
d. What is the percentage cost of trade credit to customers who do not take the discount
and pay in 80 days? Round your answers to two decimal places. Do not round
intermediate calculations.
e. What would happen to McEwan's accounts receivable if it toughened up on its collection
policy with the result that all non-discount customers paid on the 25th day? Round your
answers to two decimal places. Do not round intermediate calculations.
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