Question

# Nexus Enterprises has an inventory conversion period of 50 days, an average collection period of 35...

Nexus Enterprises has an inventory conversion period of 50 days, an average collection period of 35 days and a payables deferral period of 25 days. assume that cost of goods sold is 80% of sales.

1 what is the length of the firms cash conversion cycle?

2 if annual sales are 4380000 dollars and all sales are on credit what is the firm's investment in accounts receivable?

3 how many times per year does negus Enterprises turn over its inventory?

1.
Inventory Conversion Period = 50 days
Average collection period = 35 days
Payables deferral period = 25 days

Cash Conversion Cycle = Inventory Conversion Period + Average collection period - Payables deferral period
= 50 + 35 - 25
Cash Conversion Cycle = 60 days

2.
Annual Credit Sales = 4,380,000
Average Collection Period = Accounts Receivables / Total Credit Sales * No. of days in a year
35 = Accounts Receivables/4380000 * 365
Accounts Receivables = 35/365 * 4380000
Accounts Receivables = 420000

Hence the firm's investment in accounts receivables when the sale is \$4,380,000 is \$420,000

3.
Inventory Turnover = 365/Inventory Conversion Period
= 365/50
Inventory Turnover = 7.3 times

Hence the company turn over its inventory 7.3 times a year

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