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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

CASH CONVERSION CYCLE Zocco Corporation has an inventory conversion period of 75 days, an average collection period of 38 days, and a payables deferral period of 30 days.

a. What is the length of the cash conversion cycle?

b. If Zocco’s annual sales are $3,421,875 and all sales are on credit, what is the investment in accounts receivable?

c. How many times per year does Zocco turn over its inventory? Assume that the cost of goods sold is 75% of sales.

(a)

Summary Introduction

To determine: The length of the conversion cycle.

Cash conversion cycle:

The cash conversion cycle refers to a tool used to measure the effectiveness of the management of a company and the overall health of that company.

Explanation

Given information:

Inventory conversion period is 75 days.

Receivables collection period is 38 days.

Payables deferral period is 30 days.

Calculate the length of the conversion cycle as shown below.

Cashconversioncycle</

(b)

Summary Introduction

To determine: The investment in accounts receivables.

(c)

Summary Introduction

To determine: The inventory turnover period.

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