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Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
ISBN: 9781305635937

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
ISBN: 9781305635937
Textbook Problem
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CASH CONVERSION CYCLE Zane Corporation has an inventory conversion period of 64 days, an average collection period of 28 days, and a payables deferral period of 41 days.

  1. a. What is the length of the cash conversion cycle?
  2. b. If Zane’s annual sales are $2,578,235 and all sales are on credit, what is the investment in accounts receivable?
  3. c. How many times per year does Zane turn over its inventory? Assume that the cost of goods sold is 75% of sales. Use sales in the numerator to calculate the turnover ratio.
  4. d.
  5. e.

a.

Summary Introduction

To determine: The length of the cash conversion cycle.

Introduction:

Cash Conversion Cycle:

The cash conversion cycle refers to the time period which starts from the production of the products to selling of the products and until the time the customer receives the cash is known as the cash conversion cycle.

Explanation

Given information:

The inventory conversion period is 64 days.

The average collection period is 28 days.

The payables deferral period is 41 days.

Calculation of the length of the cash conversion cycle:

The formula to calculate the length of the cash conversion cycle is,

CashConversionCycle=Inventoryconversionperiod+Averagecollectionperiod<

b.

Summary Introduction

To determine: The investment in accounts receivable.

c.

Summary Introduction

To determine: The inventory turnover ratio.

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