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1) XYZ Inc. sells about $45 million year on credit. Good credit and collections performance in industry results in the 35 day ACP.

i) Determine the maximum receivables balance XYZ can bear and still accept a good rating with respect to credit and collections? prepare down the equation defining ACP, substitute given or target values, treat A/R balance as unknown, and solve.

ii) If XYZ is at present collecting the average receivable in 40 days, by how much will it have to lower receivables balance to achieve good rating?

2) Epsom Co. constructs furniture and sells about $40 million a year at the gross margin of 45%.

i) Determine the maximum inventory level firm can take to maintain the inventory turnover (based on COGS) of 8.0?

ii) If inventory contains $1.2 million of outdated and dented goods that does not turn over at all, how fast would active inventory have to turn over to attain the overall turnover rate of 8.0?

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  • Category:- Basic Finance
  • Reference No.:- M914024

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