Question

**Problem 16-11**

Cash Conversion Cycle

Negus Enterprises has an inventory conversion period of 62 days, an average collection period of 35 days, and a payables deferral period of 36 days. Assume that cost of goods sold is 80% of sales. Assume 365 days in year for your calculations.

- What is the length of the firm's cash conversion cycle?

days - If Negus's annual sales are $3,705,000 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.

Answer #1

a)

Cash conversion cycle = Inventory period + Average collection period - payables deferral period

Cash conversion cycle = 62 + 35 - 36

**Cash conversion cycle = 61 days**

b)

Days on receivables = 365 / Receivables turnover

35 = 365 / Receivables turnover

Receivables turnover = 10.42857

Receivables turnover = Credit sales / Accounts receivables

10.42857 = 3,705,000 / Accounts receivables

**Accounts receivables = 355,274**

c)

Days of inventory = 365 / inventory turnover

62 = 365 / inventory turnover

inventory turnover = 5.89

**It will turn over 5.89 times**

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