Question

**Problem 16-11**

Cash Conversion Cycle

Negus Enterprises has an inventory conversion period of 72 days, an average collection period of 50 days, and a payables deferral period of 29 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 $3,757,625 and all sales are on
credit, what is the firm's investment in accounts receivable? Round
your answer to the nearest dollar. Do not round intermediate
calculation.

$ - How many times per year does Negus Enterprises turn over its
inventory? Round your answer to two decimal places. Do not round
intermediate calculation.

x

Answer #1

**(a)-** **Firm's cash conversion
cycle**

Firm's cash conversion cycle = Inventory Conversion period + Average Collection period – Payables deferral period

= 72 Days + 50 Days – 29 Days

= 93 Days

“Firm's cash conversion cycle = 93 Days”

**(b)-** **Firm's investment in accounts
receivables**

Firm's investment in accounts receivables = Annual sales x (Average collection period / 365 Days)

= $37,57,625 x (50 / 365)

= $5,14,743

“Firm's investment in accounts receivables = $5,14,743”

**(c)-Inventory Turnover
Ratio**

Inventory Turnover Ratio = Number of days in a year / Inventory Conversion Period

= 365 Days / 72 Days

= 5.07 Times

“Negus Enterprises turn over its inventory 5.07 per year”

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