Week 7 Problem Set

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Week 7 Problem Set

Answer the following questions and solve the following problems in the space provided. When you are done, save the file in the format flastname_Week_7_Problem_Set.docx (where flastname is your first initial and your last name), and submit it to the appropriate Dropbox.

Chapter 26 (page 903):

1. Answer the following questions:

a. What is the difference between a firm’s cash cycle and its operating cycle?

b. How will a firm’s cash cycle be affected if a firm increases its inventory, all else being equal?

c. How will a firm’s cash cycle be affected if a firm begins to take the discounts offered by its suppliers, all else being equal?

4. The Greek Connection had sales of $32 million in 2012, and a cost of goods sold of $20 million. A simplified balance sheet for the firm appears below:

THE GREEK CONNECTION

Balance Sheet

As of December 31, 2012 (in $ thousand)

Assets Liabilities and Equity

Cash

Accounts receivable

Inventory $ 2,000

3,950

1,300 Accounts payable

Notes payable

Accruals $ 1,500

1,000

1,220

Total current assets

$ 7,250

Total current liabilities

Long-term debt $ 3,720

3,000

Net plant, property,

and equipment

$ 8,500 Total liabilities

Common equity $ 6,720

9,030

Total assets $ 15,750 Total liabilities and equity $ 15,750

a. Calculate The Greek Connection’s net working capital in 2012.

b. Calculate the cash conversion cycle of The Greek Connection in 2012.

c. The industry average accounts receivable days is 30 days. What would the cash conversion cycle for The Greek Connection have been in 2012 if it had matched the industry average for accounts receivable days?