FIN515_Homework7_BBridges

16-1
Sales $10,000,000
Old turnover ratio=2

New turnover ratio= 5

Old inventory = sales/old turnover ratio
=$10,000.000/2
= $5,000,000
New inventory=sales/new turnover ratio
= $10,000,000/5
= $2,000,000
Freed up cash = Old Inventory – New Inventory
= $5,000,000 - $2,000,000
= $3,000,000
16-2
DSO = days*sales per day
= 17 X $3,500
= $59,500
16-3
Nominal cost of Trade= Discount Percentage x Days credit is Outstanding-Discount Period
Periods/year =365/(30-15)
=24.33
Periodic rate=.03/.97=.3093
= 397 X 36530-15
= 0.03093 x 24.33
= 0.75263
= 75.26%
Effective Cost of trade=
periods/year
EAR=(1+periodic rate)
-1
24.33
=(1.03093)
-1
=109.84%
16-4
Periods/year =365/(60-15)
=8.11
Periodic rate=.01/.99=.01010
Effective Cost of trade=
periods/year
EAR=(1+periodic rate)
-1
8.11
=(1.01010) -1
=8.49%
16-5
Average Accounts Payable=Credit purchases per day * collection period length
=$500,000*15 days
=$7,000,000

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