Problems – Chapter 16 1. Your consulting firm was recently hired to improve the performance of Shin-Soenen Inc, which is highly profitable but has been experiencing cash shortages due to its high growth rate. As one part of your analysis, you want to determine the firm’s cash conversion cycle. Using the following information and a 365-day year, what is the firm’s present cash conversion cycle?
Average inventory = $75,000
Annual sales = $600,000
Annual cost of goods sold = $360,000
Average accounts receivable = $160,000
Average accounts payable = $25,000

Cash Conversion Cycle:

Inventory conversion period (ICP) = Average inventory / Cost of goods sold per day = 75,000 / (360,000/365) = 76.04 days
Receivable conversion period (RCP) = Average accounts receivables / Sales per day = 160,000 / (600,000/365) = 97.33 days
Payables deferral period (PDP) = Payables / Cost of goods sold per day = 25,000 / (360,000/365) = 25.35 days
Cash Conversion Cycle (CCC) = ICP + RCP – PDP = 76.04 + 97.33 – 25.35 days = 148.02 days

2. Van Den Borsh Corp. has annual sales of $50,735,000, an average inventory level of $15,012,000, and average accounts receivable of $10,008,000. The firm's cost of goods sold is 85% of sales. The company makes all purchases on credit and has always paid on the 30th day. However, it now plans to take full advantage of trade credit and to pay its suppliers on the 40th day. The CFO also