Question

Cash Conversion Cycle Negus Enterprises has an inventory conversion period of 72 days, an average collection period of 48 days, and a payables deferral period of 24 days. Assume that cost of goods sold is 80% of sales. Assume a 365-day year. Do not round intermediate calculations. a. What is the length of the firm's cash conversion cycle? Round your answer to the nearest whole number. days b. If annual sales are $4,818,000 and all sales are on credit, what is the firm's investment in accounts receivable? Round your answer to the nearest dollar. A c. How many times per year does Negus Enterprises turn over its inventory? Round your answer to two decimal places.

Answer 1

Q1) Cash Conversion Cycle= Days of inventory + Days of receivable - Days of payable

= 72 + 48 - 24

= 96 days

Q2) Days of receivable = (account receivable / credit sales) × 100

48 = (account receivable / 4,818,000) × 365

48 × 4,818,000 / 365 = account receivable

Account Receivable = 231,264,000 / 365

= $633,600

Q3) Days of inventory = Inventory / cost of goods sold × 365

72 = (inventory / 4,818,000 × 80%) ×365

72 = (inventory / 3,854,400 ) × 365

72 × 3,854,400 / 365 = inventory

Inventory= 277,516,800 / 365

Inventory= $760,320

Inventory turnover= Cost of goods sold / inventory

= 3,854,400 / 760,320

= 5.07 x