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Question 8: The following company has sales of $30 million and a cost of goods sold...

Question 8: The following company has sales of $30 million and a cost of goods sold of $18 million. The balance sheet for period ending 31 December 2019 for this company appears below:

Assets                                                      $000

Liabilities and Shareholder Equity      $000

Cash                                                         2500  

Accounts Payable                                    1600

Accounts Receivable                             4400

Other Payables                                           900

Inventory                                                1500

Accruals                                                      1100

Total Current Assets                            8400

Total Current Liabilities                          3600

Property Plant and Equipment         10500

Long Term Debt                                        2500

Total Assets                                         18900

Total Liabilities                                         6100

Issued Equity                                           12800

Total Liability & Shareholder Equity 18900

a. Calculate the company’s net working capital in 2019.                                     

b. Calculate the company’s cash cycle for 2019.

c. The industry average for accounts receivable is 28 days. What would this company’s cash cycle have been in 2019 if it had matched this industry average for accounts receivable? Comment on this new cash cycle outcome against b. above.

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