1 Williams & Sons last year reported sales of $30 million, cost of goods sold (COGS) of $24 million, and an inventory turnover ratio of 4. The company is now adopting a new inventory system. If the new system is able to reduce the firm's inventory level and increase the firm's inventory turnover ratio to 6 while maintaining the same level of sales and COGS, how much cash will be freed up? Do not round intermediate calculations. Enter your answer in dollars. For example, an answer of $1.23 million should be entered as 1,230,000,000. Round your answer to the nearest dollar

2. Medwig Corporation has a DSO of 43 days. The company averages $6,250 in sales each day (all customers take credit). What is the company's average accounts receivable? Assume a 365-day year. Round your answer to the nearest dollar.

3.What are the nominal and effective costs of trade credit under the credit terms of 4/20, net 40? Assume a 365-day year. Do not round intermediate calculations. Round your answers to two decimal places.

Nominal cost of trade credit: %

Effective cost of trade credit: %

4. A large retailer obtains merchandise under the credit terms of 1/10, net 35, but routinely takes 65 days to pay its bills. (Because the retailer is an important customer, suppliers allow the firm to stretch its credit terms.) What is the retailer's effective cost of trade credit? Assume a 365-day year. Do not round intermediate calculations. Round your answer to two decimal places.

5. A chain of appliance stores, APP Corporation, purchases inventory with a net price of $750,000 each day. The company purchases the inventory under the credit terms of 2/15, net 40. APP always takes the discount but takes the full 15 days to pay its bills. What is the average accounts payable for APP? Round your answer to the nearest dollar.

6. Snider Industries sells on terms of 2/10, net 35. Total sales for the year are $500,000. Thirty percent of customers pay on the 10th day and take discounts; the other 70% pay, on average, 40 days after their purchases. Assume a 365-day year.

1. What is the days sales outstanding? Do not round intermediate calculations. Round your answer to the nearest whole number.

days

1. What is the average amount of receivables? Do not round intermediate calculations. Round your answer to the nearest dollar.

$

1. What would happen to average receivables if Snider toughened its collection policy with the result that all nondiscount customers paid on the 35th day? Do not round intermediate calculations. Round your answer to the nearest dollar.

$

7. Calculate the nominal annual cost of trade credit under each of the following terms. Assume a 365-day year. Do not round intermediate calculations. Round your answers to two decimal places.

1. 1/15, net 25.

%

1. 2/10, net 60.

%

1. 3/10, net 50.

%

1. 2/10, net 50.

%

1. 2/15, net 40.

%

8. Dorothy Koehl recently leased space in the Southside Mall and opened a new business, Koehl's Doll Shop. Business has been good, but Koehl frequently runs out of cash. This has necessitated late payment on certain orders, which is beginning to cause a problem with suppliers. Koehl plans to borrow from the bank to have cash ready as needed, but first she needs a forecast of how much she should borrow. Accordingly, she has asked you to prepare a cash budget for the critical period around Christmas, when needs will be especially high.

Sales are made on a cash basis only. Koehl's purchases must be paid for during the following month. Koehl pays herself a salary of $4,100 per month, and the rent is $2,500 per month. In addition, she must make a tax payment of $12,000 in December. The current cash on hand (on December 1) is $350, but Koehl has agreed to maintain an average bank balance of $4,000 - this is her target cash balance. (Disregard the amount in the cash register, which is insignificant because Koehl keeps only a small amount on hand in order to lessen the chances of robbery.)

The estimated sales and purchases for December, January, and February are shown below. Purchases during November amounted to $140,000.

	Sales	Purchases
December	$180,000		$40,000
January	32,000		40,000
February	56,000		40,000

Prepare a cash budget for December, January, and February. Do not round intermediate calculations. Round your answers to the nearest dollar. Negative values, if any, should be indicated by a minus sign.

Collections and Purchases:
	December		January		February
Sales (Collections)	$		$		$
Purchases	$		$		$
Payments for purchases	$		$		$
Salaries	$		$		$
Rent	$		$		$
Taxes	$		---		---
Total payments	$		$		$
Cash at start of forecast	$		---		---
Net cash flow	$		$		$
Cumulative cash balance	$		$		$
Target cash balance	$		$		$
Surplus cash or loans needed	$		$		$

1. Suppose that Koehl starts selling on a credit basis on December 1, giving customers 30 days to pay. All customers accept these terms, and all other facts in the problem are unchanged. What would the company's loan requirements be at the end of December in this case? (Hint:The calculations required to answer this part are minimal.) Do not round intermediate calculations. Round your answer to the nearest dollar.

$

9.Brothers Breads has the following data. What is the firm's cash conversion cycle?

Inventory conversion period =	50 days
Average collection period =	17 days
Payables deferral period =	25 days

10. Mark's Manufacturing's average age of accounts receivable is 45 days, the average age of accounts payable is 40 days, and the average age of inventory is 69 days. Assuming a 365-day year, what is the length of its cash conversion cycle?

11.Data on Nathan Enterprises for the most recent year are shown below, along with the days sales outstanding of the firms against which it benchmarks. The firm's new CFO believes that the company could reduce its receivables enough to reduce its DSO to the benchmarks' average. If this were done, by how much would receivables decline? Use a 365-day year.

Sales	$110,000
Accounts receivable	$16,000
Days sales outstanding (DSO)	53.09
Benchmark days sales outstanding (DSO)	20.00

12.Thornton Universal Sales' cost of goods sold (COGS) average $2,000,000 per month, and it keeps inventory equal to 50% of its monthly COGS on hand at all times. Using a 365-day year, what is its inventory conversion period?

13. Shulman Inc. has the following data, in thousands. Assuming a 365-day year, what is the firm's cash conversion cycle?

Annual sales =	$45,000
Annual cost of goods sold =	$30,000
Inventory =	$4,500
Accounts receivable =	$1,800
Accounts payable =	$2,500

14.Kiley Corporation had the following data for the most recent year (in millions). The new CFO believes (1) that an improved inventory management system could lower the average inventory by $4,000, (2) that improvements in the credit department could reduce receivables by $2,000, and (3) that the purchasing department could negotiate better credit terms and thereby increase accounts payable by $2,000. Furthermore, she thinks that these changes would not affect either sales or the costs of goods sold. If these changes were made, by how many days would the cash conversion cycle be lowered?

	Original	Revised
Annual sales: unchanged	$110,000	$110,000
Cost of goods sold: unchanged	$80,000	$80,000
Average inventory: lowered by $4,000	$20,000	$16,000
Average receivables: lowered by $2,000	$16,000	$14,000
Average payables: increased by $2,000	$10,000	$12,000
Days in year	365	365

15. Newsome Inc. buys on terms of 3/15, net 45. It does not take the discount, and it generally pays after 60 days. What is thenominal annual percentage costof its non-free trade credit, based on a 365-day year?

16.Howes Inc. purchases $4,562,500 in goods per year from its sole supplier on terms of 2/15, net 50. If the firm chooses to pay on time but does not take the discount, what is theeffective annual percentage costof its non-free trade credit? (Assume a 365-day year.)