Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

DOLLAR BILL'S, a retail store in New York City, buys its inventory on credit.Upon purchase, it is given 30 days in which to pay its

DOLLAR BILL'S, a retail store in New York City, buys its inventory on credit.Upon purchase, it is given 30 days in which to pay its suppliers.It sells all of its merchandise on credit.It extends 60 days of credit to its customers.Its inventory turnover rate is 60 days.

Situation 1

Using the Cash Conversion Model, measure DOLLAR BILL'S financing cycle in both days and money ($US) using the following assumptions:

  • Sales of $730,000
  • Gross Margin of 30%
  • Financing Rate 61/2%

Situation 2

Recent management decisions have had the following impact:

  • DOLLAR BILL has renegotiated its credit line so that it has 35 days to pay its suppliers
  • It now extends 45 days of credit to its customers,
  • It has an inventory turnover rate of 45 days.

All other factors remain the same.Has DOLLAR BILL'S financing cycle improved or declined?Quantify the change in days and in dollars. Please show your work.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Entrepreneurial Finance

Authors: J. Chris Leach, Ronald W. Melicher

6th edition

1305968352, 978-1337635653, 978-1305968356

More Books

Students also viewed these Finance questions