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CASH CONVERSION CYCLE Christie Corporation is trying to determine the effect of its inventory turnover ratio and days sales outstanding (DSO) on its cash conversion cycle. Christie’s 2015 sales (all on credit) were $150,000; its cost of goods sold is 80% of sales; and it earned a net profit of 6%, or $9,000. It turned over its inventory 6 times during the year, and its DSO was 36 5 days. The firm had fixed assets totaling $35,000. Christie’s payables deferral period is 40 days. a. Calculate Christie’s cash conversion cycle. b. Assuming Christie holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. c. Suppose Christie’smanagers believe that the inventory turnover can be raised to 9 0 times. What would Christie’s cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 9 0 for 2015?

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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781285867977
BuyFind

Fundamentals of Financial Manageme...

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

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Chapter 16, Problem 7P
Textbook Problem

CASH CONVERSION CYCLE Christie Corporation is trying to determine the effect of its inventory turnover ratio and days sales outstanding (DSO) on its cash conversion cycle. Christie’s 2015 sales (all on credit) were $150,000; its cost of goods sold is 80% of sales; and it earned a net profit of 6%, or $9,000. It turned over its inventory 6 times during the year, and its DSO was 36 5 days. The firm had fixed assets totaling $35,000. Christie’s payables deferral period is 40 days.

a. Calculate Christie’s cash conversion cycle.

b. Assuming Christie holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA.

c. Suppose Christie’smanagers believe that the inventory turnover can be raised to 9 0 times. What would Christie’s cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 9 0 for 2015?

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