Question

1.) Williams & Sons last year reported sales of $32 million, cost of goods sold (COGS) of $24 million, and an inventory turnover ratio of 4. The company is now adopting a new inventory system. If the new system is able to reduce the firm's inventory level and increase the firm's inventory turnover ratio to 6 while maintaining the same level of sales and COGS, how much cash will be freed up? Do not round intermediate calculations. Enter your answer in dollars. For example, an answer of $1.23 million should be entered as 1,230,000,000. Round your answer to the nearest dollar.

2.) What are the nominal and effective costs of trade credit under the credit terms of 2/10, net 40? Assume a 365-day year. Do not round intermediate calculations. Round your answers to two decimal places.

Nominal cost of trade credit:   %

Effective cost of trade credit:   %

3.) A large retailer obtains merchandise under the credit terms of 1/20, net 35, but routinely takes 55 days to pay its bills. (Because the retailer is an important customer, suppliers allow the firm to stretch its credit terms.) What is the retailer's effective cost of trade credit? Assume a 365-day year. Do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

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