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# Cash Conversion, cost of trade credit, commercial paper

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5. Given the following data:
Days inventory = 103 days, Days receivables = 41 days, and Days payables = 81 days
Calculate the cash conversion cycle and operating cycle.

6. Calculate the cost of trade credit given terms of 3/20 net 60.

7. A firm issues \$1,000,000 of commercial paper with a maturity of 60 days and a discount rate of 5%. The paper is sold through a dealer who charges 0.25%. What is the effective cost of issuing the commercial paper?

#### Solution Preview

5. Given the following data:
Days inventory = 103 days,  Days receivables = 41 days, and  Days payables   =  81 days
Calculate the cash conversion cycle  and operating cycle.

Cash Conversion Cycle = Days inventory + Days receivable- Days payables= 63 days =103+41-81
Operating Cycle = Days inventory + Days receivable= 144 days =103+41

Cash Conversion Cycle = 63 days
Operating Cycle = 144 days

6. Calculate the cost of trade  credit   given terms of  3/20 net 60.

Terms 3/20 net ...

#### Solution Summary

Answers 3 questions on Cash Conversion cycle, cost of trade credit, commercial paper.

\$2.19

## Introduction to Finance

Introduction to Finance
Week 5 - Numerical Exercises

S. No. Problems
1 Given the following data for Gary and Co (Millions of Dollars):

Balance Sheet Dec 31 200X

Cash \$45
Accounts Payables \$45
Marketable Securities 33
Notes Payables 45
Receivables 66
Other Current liabilities 21
Inventory 159
Total Current liabilities \$111
Total Current Assets 303
Long term debt 24
Total liabilities \$135
Net Fixed Assets 147
Common Stock 114
Total Assets \$450
Retained Earnings 201
Total stockholders' equity 315
Total liabilities and equity 450

Income Statement Year 200X

Net sales \$795
Cost of goods sold 660
Gross profit 135
Selling expenses 73.5
Depreciation 12
EBIT 49.5
Interest expense 4.5
EBT 45
Taxes (40% 18
Net Income 27

Calculate the following ratios:

Ratio Industry Average
Current ratio
Times interest earned
DSO
Inventory Turnover
Sales/Total Assets
Profit margin on sales
Return on Total Assets
Return on Common Equity

2 Given the compressed version of balance sheet and income statement; estimate the amount of external financing needed to increase sales by 20% next year. (use percentage of sales method)
(Dividend payout is 50%) \$2,000

3 A firm has outstanding receivables of \$125,000. Its credit terms are net 30. If during the past three months credit sales are \$100,000, \$105,000 and \$60,000 how many days of sales are outstanding as receivables?

4 Given the following data develop weekly cash budget Minimum cash required is \$50 and the beginning cash balance is \$100.

5 Given the following data :
Days inventory = 103 days; Days receivables = 41 days and Days payables = 81 days
Calculate the cash conversion cycle and operating cycle

6 Calculate the cost of trade credit given terms of 3/20 net 60

7 A firm issues \$1,000,000 of commercial paper with a maturity of 60 days and a discount rate of 5%. The paper is sold through a dealer who charges 0.25% What is the effective cost of issuing the commercial paper?

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