Williams & Sons last year reported sales of $10 million and an inventory turnover dimension of 2. The bon ton is right away adopting a new inventory system. If the new system is subject to reduce the firms inventory level and ontogenesis the firms inventory turnover ratio to 5 while maintaining the same level of sales, how much cash testament be freed up?
Sales$10,000,000
Inventory Turnover ratio (old)2
Inventory Turnover ratio (new)5
Freed up Cash$3,000,000
In order to find the freed up cash we need to organise inventory.
We know level of inventory are calculated as follows
Inventory = sales/inventory turnover ratio
Calculating $ economic value of old inventory
Inventory hoar = $5,000,000
Calculating $ value of radical inventory
Inventory New = $2,000,000
The freed up cash would be = Old Inventory New Inventory =$5,000,000 - $2,000,000 = $3,000,000
(16-2)Receivables Investment
Medwig Corporation has a DSO of 17 days. The company averages $3,500 in creed sales each day. What is the companys average accounts receivable?
Accounts Receivable = 17* $3,500 = $59,500
(16-3) apostrophize of Trade Credit
What is the nominal and effective cost of trade credit under the credit terms of 3/15, net 30?
Nominal cost of Trade formula = discount percentage100- terminate Percentage*365Days credit is Outstanding-Discount Period
=397*36,530-15
=0.03093 *24.33
= 0.75263
=75.26%
Effective price of Trade form is:
Periodic rate = 0.03 / 0.97 = 0.3093
Periods/year = 365 / (30-15) = 24.33
EAR= (1 + periodic rate)N 1
= (1.03093)24.33 1 = 109.84%
(16-4)Cost of Trade Credit
A large retailer obtains deal under the credit terms of 1/15, net 45, just now routinely takes 60 days to pay its bills. (Because the retailer is an grave customer, suppliers allow the firm to stretch its credit terms.) What is the retailers effective cost of trade credit?
Effective Cost of Trade Formula is:
Periodic rate = 0.01 / 0.99 = 0.01010...If you want to micturate a full essay, order it on our website: Orderessay
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