1. Williams & Sons last year reported sales of $17 million and an inventory turnover ratio of 3.3. 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 7.7 while maintaining the same level of sales, how much cash will be freed up? Round your answer to the nearest dollar.
$ _________

2. Medwig Corporation has a DSO of 33 days. The company averages $4,250 in credit sales each day. What is the company's average accounts receivable? Round your answer to the nearest dollar
$ ________

3. What is the nominal and effective cost of trade credit under the credit terms of 3/10, net 30? Assume 365 days in a year for your calculations. Round your answers to two decimal places.
_______ %

_______ %

4. A large retailer obtains merchandise under the credit terms of 1/15, net 35, but routinely takes 70 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. Round your answer to two decimal places.
_____ %

5. A chain of appliance stores, APP Corporation, purchases inventory with a net price of $600,000 each day. The company purchases the inventory under the credit terms of 2/15, net 35. 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. McDowell Industries sells on terms of 3/10, net 30. Total sales for the year are $1,911,500. Forty percent of the customers pay on the 10th day and take discounts; the other 60% pay, on average, 42 days after their purchases. Assume 365 days in year for your calculations.
a) What is the days sales outstanding?
______ days
b) What is the average amount of receivables? Round your answer to the nearest dollar.
$_______
c) What would happen to average receivables if McDowell toughened up on its collection policy with the result that all nondiscount customers paid on the 30th day? Round your answer to the nearest dollar.
The average receivables would be equal $ _______
7. Calculate the nominal annual cost of nonfree trade credit under each of the following terms. Assume payment is made either on the due date or on the discount date. Assume 365 days in year for your calculations.
a) 1/15, net 30. Round your answer to two decimal places.
________ %
b) 2/10, net 60. Round your answer to two decimal places.
______ %
c) 3/10, net 55. Round your answer to two decimal places.
______ %
d) 2/10, net 55. Round your answer to two decimal places.
______ %
e) 2/15, net 35. Round your answer to two decimal places.
______ %
8. The Zocco Corporation has an inventory conversion period of 61 days, an average collection period of 44 days, and a payables deferral period of 27 days. Assume that cost of goods sold is 75% of sales. Assume 365 days in year for your calculations.
a. What is the length of the firm's cash conversion cycle?
_____days
b. If Zocco's annual sales are $3,417,025 and all sales are on credit, what is the firm's investment in accounts receivable? Round your answer to the nearest dollar.
$ _____
c. How many times per year does Zocco turn over its inventory? Round your answer to two decimal places.
_______
9. The Christie Corporation is trying to determine the effect of its inventory turnover ratio and days sales outstanding (DSO) on its cash flow cycle. Christie's sales last year (all on credit) were $160,000, and it earned a net profit of 5%, or $8,000. It turned over its inventory 10 times during the year, and its DSO was 40 days. Its annual cost of goods sold was $121,027. The firm had fixed assets totaling $35,000. Christie's payables deferral period is 45 days. Assume 365 days in year for your calculations.
a) Calculate Christie's cash conversion cycle. Round your answer to two decimal places.
_____days

b) Assuming Christie holds negligible amounts of cash and marketable securities, calculate its total assets turnover. Round your answer to two decimal places.
_____ x
c) Calculate its ROA. Round your answer to two decimal places.
_____%

d) Suppose Christie's managers believe that the inventory turnover can be raised to 9 times without affecting sales and cost of goods sold. What would Christie's cash conversion cycle have been if the inventory turnover had been 9 for the year? Round your answer to two decimal places.
_____days
e) What would Christie's total assets turnover have been if the inventory turnover had been 9 for the year? Round your answer to two decimal places.
______x
f) What would Christie's ROA have been if the inventory turnover had been 9 for the year? Round your answer to two decimal places.
______  %

10. Dorothy Koehl recently leased space in the Southside Mall and opened a new business, Koehl's Doll Shop. Business has been good, but Koehl has frequently run 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 just how much she must 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 $4,600 per month, and the rent is $2,700 per month. In addition, she must make a tax payment of $11,000 in December. The current cash on hand (on December 1) is $600, but Koehl has agreed to maintain an average bank balance of $5,500 - this is her target cash balance. (Disregard cash in the till, 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 $150,000.
Sales Purchases
December $140,000 $35,000
January 34,000 40,000
February 54,000 40,000
Prepare a cash budget for December, January, and February.

10 Part 2. Now, suppose 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 question are minimal.)
$ _________