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FIN100 Week 9 Homework Chapter 15 & 16

1. Pretty Lady Cosmetic Products has an
average production process time of forty days. Finished goods are kept on hand
for an average of fifteen days before they are sold. Accounts receivable are
outstanding an average of thirty- five days, and the firm receives forty days
of credit on its purchases from suppliers.
Estimate the average length of the firm’s short-term operating cycle. How often
would the cycle turn over in a year? 50 Days
Operating cycle=
Inventory period+ Receivable period
+ (40days + ? days) +
? days= ?days
# turns per

Assume net sales of $ 1,200,000 and cost of goods sold of $ 900,000. Determine
the average investment in accounts receivable, inventories, and accounts
payable. What would be the net financing need considering only these three
accounts? $53,424.66
period=Inventory/ (COGS/365)
.0/msohtmlclip1/01/clip_image001.png”>??=Inventory/(?/365) Inventory= 135,616.44
period= AR/(Sales/3655)
AR= 115,068.49
Payment period=AP/(COGS/365)
.0/msohtmlclip1/01/clip_image001.png”>40=AP/(?/365) AP=$98,630.14
Net Financing =AR+Inventory-AP
= ?+?-?
= $152,054.79

4. Suppose the Robinson Company had a
cost of goods sold of 1,000,000 in 2010 and $1,200,000 in 2011.
a. Calculate the inventory turnover for
each year. Comment on your findings.
Robinson Company




Cost of Goods sold


Profit margin


Accounts Receivable




Accounts Payable


Sales/ day=








conversion period= Inventory/ COGS per day
? Days ? Days
collection period= AR/ sales per day
? Days ? Days
payment period= AP/COGS per day
? Days ?
cycle=Inventory conversion + collection periods
? Days ? Days

b. What was Robison’s net investment in
working capital each year?
Net investment in working capital=
AR+Inventory-AP (as used in this chapter)


=? +?-?

=? +?-?



3. Obtain a
current issue of the Federal reserve Bulletin or review of copy from the Fed’s
Website (.federalreserve.gov/”>www.federalreserve.gov ) or (.stlouisfed.org/”>www.stlouisfed.org) and determine the changes in the prime
rate that have occurred since the end of
1998. Comment on any trends in the data.
Rates have been
low since 2008, what is intended results.
4. Compute the
effective cost of not taking the cash discount under the following trade credit
a. 2/10 net 40
.0/msohtmlclip1/01/clip_image003.png”>.0/msohtmlclip1/01/clip_image003.png”> 2 x 365 =24.83%
100-2 40-10

a. 2/10 net 50
.0/msohtmlclip1/01/clip_image003.png”>.0/msohtmlclip1/01/clip_image003.png”> ? x 365 =?%
100-? ? – ?
a. 3/10 net 50
.0/msohtmlclip1/01/clip_image003.png”>.0/msohtmlclip1/01/clip_image003.png”> ? x 365 =?%
100-? ? – ?
a. 2/20 net 40
.0/msohtmlclip1/01/clip_image003.png”>.0/msohtmlclip1/01/clip_image003.png”> 2 x 365 =?%
100-? ? – ?

5. What
conclusions can you make about credit terms from reviewing your answer to
problem 4?

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