Cash Conversion Cycle
Negus Enterprises has an inventory conversion period of 60 days, an average collection period of 48 days, and a payables deferral period of 27 days. Assume that cost of goods sold is 80% of sales. Assume a 365-day year. Do not round intermediate calculations.
What is the length of the firm's cash conversion cycle? Round your answer to the nearest whole number.
___days
If annual sales are $4,124,500 and all sales are on credit, what is the firm's investment in accounts receivable? Round your answer to the nearest dollar.
____$
How many times per year does Negus Enterprises turn over its inventory? Round your answer to two decimal places.
_____ ×
a. The length is computed as shown below:
= inventory conversion period + average collection period - payables deferral period
= 60 days + 48 days - 27 days
= 81 days
b. The accounts receivable is computed as shown below:
= (Average collection period x Annual sales) / 365 days
= (48 days x $ 4,124,500) / 365 days
= $ 542,400
c. The times per year is computed as shown below:
= 365 days / inventory conversion period
= 365 / 60
= 6.08 Approximately
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