Consider the case of Jealous Leopard Trading Company:

Jealous Leopard Trading Company Is a mature firm that has a stable flow of business. The following data was taken from Its financial

statements last year:

Leopard Trading's CFO is interested in determining the length of time funds are tied up in working capital. Use the information in the preceding table to

complete the following table. $($Note: Use $365$ days as the length of a year in all calculations, and round all values to two decimal places.$)$

Both the Inventory conversion period and payables deferral period use the average dally COGS in their denominators, whereas the average collection

perlod uses average dally sales in its denominator. Why do these measures use different inputs?

Current assets should be divided by sales, but current llabilities should be divided by the COGS.

Inventory and accounts payable are carried at cost on the balance sheet, whereas accounts recelvable are recorded at the price at which

goods are sold.

Is there generally a positive or negative relationship between net working capital and the cash conversion cycle? $($In other words, if a firm has a high

level of net working capital, is it llkely to have a high or low cash conversion cycle?$)$

There is a negative relationship between net working capital and the cash conversion cycle.

There is a positive relationship between net working capital and the cash conversion cycle.

What are the four key factors in a firm's credit pollcy?

Credit period, discounts, credit standards, and collection pollcy

Credit terms, discounts, credit standards, and collection pollcy

If the credit terms as published by a firm were $\frac{2}{15},$ net $60,$ this means the firm will:

allow a $2\%$ discount if payment is recelved within $15$ days of the purchase, and if the discount is not taken the full amount is due in $60$

days.

allow a $15\%$ discount if payment is recelved within $2$ days of the purchase, and if the discount is not taken the full amount is due in $60$

days.

The management at Jealous Leopard Trading Company wants to continue its internal discussions related to its cash management. One of the finance

team members presents the following case to his cohorts:

Case in Discussion

Jealous Leopard Trading Company's management plans to finance its operations with bank loans that will be repaid as soon as cash is

avallable. The company's management expects that it will take $40$ days to manufacture and sell its products and $35$ days to recelve

payment from its customers. Leopard Trading's CFO has told the rest of the management team that they should expect the length of the

bank loans to be approximately $75$ days.

Which of the following responses to the CFO's statement is most accurate?

The CFO is not taking Into account the amount of time the company has to pay its suppllers. Generally, there is a certain length of time

between the purchase of materlals and labor and the payment of cash for them. The CFO can reduce the estimated length of the bank

loan by this amount of time.

The CFO's approximation of the length of the bank loans should be accurate, because It will take $75$ days for the company to

manufacture, sell, and collect cash for its goods. All these things must occur for the company to be able to repay its loans from the bank.

Setting and implementing a credit pollcy is important for three maln reasons:

It has a major effect on sales, It influences the amount of funds tled up in recelvables, and it affects bad debt losses.

It has a minor effect on sales, it influences the amount of funds tied up in recelvables, and it affects bad debt losses.