Problem 16-01

Inventory Management

Williams & Sons last year reported sales of $74 million, cost of goods sold (COGS) of $60 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 5 while maintaining the same level of sales and COGS, how much cash will be freed up? Do not round intermediate calculations. Round your answer to the nearest dollar.

Problem 16-02

Receivables Investment

Medwig Corporation has a DSO of 20 days. The company averages $2,000 in sales each day (all customers take credit). What is the company's average accounts receivable? Round your answer to the nearest dollar.

Problem 16-03

Cost of Trade Credit

What are the nominal and effective costs of trade credit under the credit terms of 2/15, net 35? Assume 365 days in a year for your calculations. Round your answers to two decimal places. Do not round intermediate calculations.

Nominal cost of trade credit%

Effective cost of trade credit %

Problem 16-04

Cost of Trade Credit

A large retailer obtains merchandise under the credit terms of 1/20, net 45, 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 365 days in year for your calculations. Do not round intermediate calculations. Round your answer to two decimal places.

Problem 16-05

Accounts Payable

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 1/15, net 30. 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.

Problem 16-06

Receivables Investment

Snider Industries sells on terms of 3/10, net 35. Total sales for the year are $910,000. Thirty percent of customers pay on the 10th day and take discounts; the other 70% pay, on average, 40 days after their purchases. Assume 365 days in year for your calculations.

1. What is the days sales outstanding? Round your answer to one decimal place.
2. What is the average amount of receivables? Round your answer to the nearest dollar. Do not round intermediate calculations.
3. What would happen to average receivables if Snider toughened its collection policy with the result that all non discount customers paid on the 35th day? Round your answer to the nearest dollar. Do not round intermediate calculations.

Problem 16-07

Cost of Trade Credit

Calculate the nominal annual cost of non free trade credit under each of the following terms. Assume that payment is made either on the due date or on the discount date. Assume 365 days in year for your calculations. Do not round intermediate calculations.

1. 1/15, net 20. Round your answer to two decimal places.

2. 2/10, net 55. Round your answer to two decimal places.

3. 3/10, net 55. Round your answer to two decimal places.

4. 2/10, net 50. Round your answer to two decimal places.

5 . 2/15, net 45. Round your answer to two decimal places.