1. Answer the following questions:

a. What is the difference between a firms cash cycle and its operating cycle?

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

c. How will a firms 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 Connections 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?

5. Assume the credit terms offered to your firm by your suppliers are 3/5, Net 30. Calculate the cost of the trade credit if your firm does not take the discount and pays on day 30.

Chapter 27 (page 925):

1. Which of the following companies are likely to have high short-term financing needs? Why?

a. A clothing retailer

b. A professional sports team

c. An electric utility

d. A company that operates toll roads

e. A restaurant chain

2. Sailboats Etc. is a retail company specializing in sailboats and other sailing-related equipment. The following table contains financial forecasts as well as current (month 0) working capital levels. During which months are the firms seasonal working capital needs the greatest? When does it have surplus cash?

		Month
($000)		0	1	2	3	4	5	6
Net Income			$10	$12	$15	$25	$30	$18
Depreciation			2	3	3	4	5	4
Capital Expenditures			1	0	0	1	0	0
Levels of Working Capital
	Accounts Receivable	$2	3	4	5	7	10	6
	Inventory	3	2	4	5	5	4	2
	Accounts Payable	2	2	2	2	2	2	2