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Cash Conversion Period and Collection Period

Hiers International has annual sales of \$126,837,500 and maintains an average inventory level of \$30,024,000. The firm's annual cost of goods sold represents 70% of its annual sales, and its average accounts receivable balance out standing is \$22,518,000. The company makes all purchases on credit and always pays on the 30th day.

- What is firm's average accounts payable balance
- What is the firm's inventory conversion period
- What is the firm's receivables collection period
- What is the firm's cash conversion period

Assume that the company is now going to take full advantage of trade credit and pay its suppliers on the 40th day. Assume that sales and the cost of goods and of goods sold remain at the existing level, but inventory and receivable balances can each be lowered by \$4,865,000.

What will be the net change in the firm's cash conversion period?

Solution Preview

Hiers International has annual sales of \$126,837,500 and maintains an average inventory level of \$30,024,000. The firm's annual cost of goods sold represents 70% of its annual sales, and its average accounts receivable balance out standing is \$22,518,000. The company makes all purchases on credit and always pays on the 30th day.

What is firms' average accounts payable balance.
=Annual cost of ...

Solution Summary

In about 210 words, this solution discusses the steps required to compute the average AR and AP, inventory and the cash conversion period. All calculations are demonstrated.

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