Question

A corporation has $343 million in sales,$238 million in COGS, $67 million in inventory, $113 million...

A corporation has $343 million in sales,$238 million in COGS, $67 million in inventory, $113 million in accounts receivables, and $90 million in accounts payable. The firm borrows at 8% compounded daily to finance its NOWC.

How much will the firm have to pay in interest for the year due to the Cash Conversion Cycle?

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Answer #1

Firm Needs to Pay interest on borrowed NOWC for its Cash Conversion Cycle

NOWC

=  Net operating working capital of a Firm

= Operating CA – Operating CL

= inventory   + accounts receivable  – accounts payable

Here,

inventory =   $67 million

accounts receivable = $113 million

accounts payable =  $90 million

NOWC = 67 + 113 - 90 = $90 million

Amount of Interest Payble = NOWC * Interest Rate = $90 million * 8% = $ 7.2 million

$ 7.2 million firm have to pay in interest for the year due to the Cash Conversion Cycle (Ans)

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