What is the difference between a firm''s cash cycle

Assignment Help Financial Accounting

Reference no: EM13829220

For those items requiring calculations, full credit will only be granted if all necessary work is shown.

1. Answer the following questions:

a. What is the difference between a firm's cash cycle and its operating cycle?

b. How will a firm's cash cycle be affected if a firm increases its inventory, all else being equal?

c. How will a firm's cash cycle be affected if a firm begins to take the discounts offered by its suppliers, all else being equal?

4.The Greek Connection had sales of $32 million in 2012, and a cost of goods sold of $20 million. A simplified balance sheet for the firm appears below:

THE GREEK CONNECTION Balance Sheet As of December 31, 2012 (in $ thousand)
Cash Accounts receivable Inventory	$ 2,000 3,950 1,300	Accounts payable Notes payable Accruals	$ 1,500 1,000 1,220
Total current assets	mce_markernbsp; 7,250	Total current liabilities Long-term debt	mce_markernbsp; 3,720 3,000
Net plant, property, and equipment	mce_markernbsp; 8,500	Total liabilities Common equity	mce_markernbsp; 6,720 9,030
Total assets	$ 15,750	Total liabilities and equity	$ 15,750

THE GREEK CONNECTION

Balance Sheet

As of December 31, 2012 (in $ thousand)

Assets

Liabilities and Equity

Cash

Accounts receivable

Inventory

$ 2,000

3,950

1,300

Accounts payable

Notes payable

Accruals

$ 1,500

1,000

1,220

Total current assets

mce_markernbsp; 7,250

Total current liabilities

Long-term debt

mce_markernbsp; 3,720

3,000

Net plant, property,

and equipment

mce_markernbsp; 8,500

Total liabilities

Common equity

mce_markernbsp; 6,720

9,030

Total assets

$ 15,750

Total liabilities and equity

$ 15,750

a. Calculate The Greek Connection's net working capital in 2012.

b. Calculate the cash conversion cycle of The Greek Connection in 2012.

c. The industry average accounts receivable days is 30 days. What would the cash conversion cycle for The Greek Connection have been in 2012 if it had matched the industry average for accounts receivable days?

5.Assume the credit terms offered to your firm by your suppliers are 3/5, Net 30. Calculate the cost of the trade credit if your firm does not take the discount and pays on day 30. Calculate both the nominal and the effective cost of trade credit.

6. Your supplier offers terms of 1/10, Net 45. What is thenominal, and the effective annual cost of trade credit if you choose to forgo the discount and pay on day 45?

Reference no: EM13829220

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