Chapter 15: Working Capital Management
Copyright Cengage Learning. Powered by Cognero.
Page 41
Total liab & equity $160,000 $200,000
95. Data on Shick Inc. for last year are shown below, along with the days sales outstanding of the firms against which it
benchmarks. The firm’s new CFO believes that the company could reduce its receivables enough to reduce its DSO to the
benchmarks’ average. If this were done, by how much would receivables decline? Use a 365-day year. Do not round your
intermediate calculations.
Sales $104,000
Accounts receivable $16,000
Days Sales Outstanding (DSO) 56.154
Benchmarks’ Days Sales Outstanding (DSO) 20.000
a. $11,538
b. $7,726
c. $12,053
d. $10,301
e. $10,507
Chapter 15: Working Capital Management
Copyright Cengage Learning. Powered by Cognero.
Page 43
your intermediate calculations.
Cost of goods sold = $78,000
Inventory = $20,000
Inventory Conversion Period (ICP) = 93.59
Benchmark Inventory Conversion Period (ICP) = 38.00
a. $11,879
b. $11,285
c. $12,949
d. $12,711
e. $12,236
98. Data on Wentz Inc. for last year are shown below, along with the payables deferral period (PDP) for the firms against
which it benchmarks. The firm’s new CFO believes that the company could delay payments enough to increase its PDP to
the benchmarks’ average. If this were done, by how much would payables increase? Use a 365-day year. Do not round
your intermediate calculations.
Cost of goods sold = $82,000
Payables = $5,000
Payables Deferral Period (PDP) = 22.256
Benchmark Payables Deferral Period = 30.000
a. $2,175
b. $1,618
c. $1,496
d. $1,914
e. $1,740
Chapter 15: Working Capital Management
Copyright Cengage Learning. Powered by Cognero.
Page 48
a. –24 days
b. –20 days
c. –25 days
d. –22 days
e. –21 days
104. Van Den Borsh Corp. has annual sales of $61,735,000, an average inventory level of $15,012,000, and average
accounts receivable of $10,008,000. The firm’s cost of goods sold is 85% of sales. The company makes all purchases on
credit and has always paid on the 30th day. However, it now plans to take full advantage of trade credit and to pay its
suppliers on the 40th day. The CFO also believes that sales can be maintained at the existing level but inventory can be
lowered by $1,946,000 and accounts receivable by $1,946,000. What will be the net change in the cash conversion cycle,
assuming a 365-day year? Do not round intermediate calculations. Round to the nearest whole day.
a. –41 days
b. –44 days
c. –28 days
d. –31 days
e. –35 days
Chapter 15: Working Capital Management
Copyright Cengage Learning. Powered by Cognero.
Page 52
108. Atlanta Cement, Inc. buys on terms of 2/15, net 30. It does not take discounts, and it typically pays 55 days after the
invoice date. Net purchases amount to $720,000 per year. What is the nominal annual percentage cost of its non-free trade
credit, based on a 365-day year?
a. 20.11%
b. 18.62%
c. 22.91%
d. 14.34%
e. 15.27%
109. Your company has been offered credit terms of 4/30, net 90 days. What will be the nominal annual percentage cost
of its non-free trade credit if it pays 105 days after the purchase? (Assume a 365-day year.)
a. 20.08%
b. 15.21%
c. 20.28%
d. 23.93%
e. 20.48%
