Question

11. You have the following balance sheet and income statement information for Epic Corp.: Balance sheet $ Accounts receivable (A/R) 1,800 Inventory 3,600 Accounts payable (A/P) 760 Income statement $ Sales 7,200 Cost of goods sold (COGS) 5,760 All sales and purchases were on credit. a. How long is the days inventory outstanding (in days)? b. How long is the collection period (in days)? c. How long is the payables period (in days)? d. How long is the cash conversion cycle (in days)? 12. You've collected the following information about your company: Period Days Days inventory outstanding 20 Collection period 32 Payables period 35 All sales and purchases were on credit. a. How long is the operating cycle (in days)? b. How long is the cash conversion cycle (in days)? 13. Petra Corp.'s assets are $520,000, and its total debt outstanding is $215,000. The CFO wants to establish a debt/assets ratio of 60%, without changing the size of the firm. a. What is the required change in debt to achieve the target debt ratio? 14. a. Which of the following statements are true about liquidity ratios? An increase in net fixed assets increases the current ratio. Companies with higher liquidity ratios are more profitable, on average. Liquidity ratios indicate the ability of the company to avoid insolvency in the short run. The inventory turnover ratio is a better measure of liquidity than the current ratio. 15. a. Which of the following changes would increase a company's current ratio if nothing else changed? O A decrease in accounts payable. O A decrease in accounts receivable. O A decrease in cash. O An increase in net fixed assets

Answer 1

12 a) operating cycle - Inventory + Collection Period Period 20 +32 a 52 days 5) Cash Conversion 6 Cycle 2 Inventory + Collection - Payables Perrud Perial Period z 20 + 32 - 35 N 17 days

(11) @ Days Innentroy - Inventory Outstanding x x 36C Coas 3600 5760 X 365 228 days 6 Collection Persol - Accounts Receivable X 365 Credit sale 1800 X 365 7200 91 days Payable Perical Accounts Payable X Х 365 COGS 760 x 365 5760 2 48 days

( (d) Cash Conversion Cycle - Inventory Collection Persol = 228 + z 9) Collection Period Payables Perial (48) 27) Carn Coriversion Cycle = 271 days