Question

1. The Polyana Shoe Store had sales last year of $40 million based upon a cost of goods sold of $30 million. Purchases represent 75% of COGS. Polyana also has inventory, accounts receivable and accounts payable of $5,000,000, $7,000,000, and $3,500,000, respectively. (Round-up the days to next whole number) a) What is Polyana’s cash conversion cycle period? b) Based on current sales and cash conversion cycle, what is Polyana’s working capital requirement? c) If sales remain at $40 million and Polyana is able to reduce its CCC by 10 days, what would be the impact on its working capital requirement? Please elaborate.

2. Ventura Corp. has annual sales of $50,735,000.00, an average inventory level of $15,012,000.00 and average accounts receivable of $10,008,000.00. 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 believes that sales can be maintained at the existing level but inventory can be lowered by $1,950,000.00 and accounts receivable by $1,900,000.00. What will be the net change in the cash conversion cycle, assuming a 365day year?

Answer 1

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