Chapter 19, Problem 15P

Use the financial statements supplied below and on the next page for International Motor Corporation (IMC) to answer the following questions (see MyFinanceLab for the data in Excel format):

a. Calculate the cash conversion cycle for IMC for both 2015 and 2016. What change has occurred, if any? All else being equal, how does this change affect IMC’s need for cash?
b. IMC’s suppliers offer terms of net 30. Doest it appear that IMC is doing a good job of managing its accounts payable?

International Motor Corporation

Income Statement (in millions)

For the Years Ending December 31

	2015	2016
Sales	$60,000	$75,000
Cost of goods sold	52,000	61,000
Gross profit	$8,000	$14,000
Selling, general and administrative expenses	6,000	8,000
Operating profit	$2,000	$6,000
Interest expense	1,400	1,300
Earnings before taxes	$600	$4,700
Taxes	300	2350
Earnings after taxes	$300	$2,350

International Motor Corporation

Balance Sheet (in millions) as of December 31

	2015	2016		2015	2016
Assets			Liabilities
Cash	$3,080	$6,100	Accounts payable	$3,600	$4,600
Accounts receivable	2,800	6,900	Notes payable	1,180	1,250
Inventory	6,200	6,600	Accruals	5,600	6,211
Total current assets	$12,080	$19,600	Total current liabilities	$10,380	$12,061
Net plant, property, and equipment	$23,087	$20,098	Long-term debt	$6,500	$7,000
			Total liabilities	$16,880	$19,061
Total assets	$35,167	$39,698	Equity
			Common Stock	$2,735	$2,735
			Retained Earnings	$15,552	$17,902
			Total Equity	$18,287	$20,637
			Total liabilities and equity	$35,167	$39,698