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sdas [7]
2 years ago
7

Suppose that Freddie's Fries has annual sales of $520,000; cost of goods sold of $395,000; average inventories of $11,000; avera

ge accounts receivable of $27,000, and an average accounts payable balance of $22,000. Assuming that all of Freddie's sales are on credit, what will be the firm's cash cycle? (Round your answer to 2 decimal places.)
Business
1 answer:
Nadusha1986 [10]2 years ago
8 0

Answer:

8.78

Explanation:

The computation of the cash cycle is given below;

We know that

Cash cycle = Inventory conversion period + Receivables conversion period - Payables conversion period.

Here

1. Inventory conversion period = Avg. Inventory ÷ (COGS ÷365)

= (11,000) ÷ (395000 ÷ 365)

= 10.16

2. Receivables conversion period = Avg. Accounts Receivable ÷ (Credit Sales × 365)

= (27000/520000) × 365

= 18.95

3. Payables conversion period = Avg. Accounts Payable ÷ (Purchases  × 365)

= (22000 ÷ 395000) × 365

= 20.33

Now the cash cycle is

= 10.16 + 18.95 - 20.33

= 8.78

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"The answer is $106".

After tax cost of debt               6%
Dep per year                          1600
Tax sav from dep                   640
cost of owning       0               1
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tax saving                               192
maintence                                 -240
maintenece saving                     96
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net cash cost                              208
PV cost of owning (6%)             -3474
cost of leasing
lease payment                           -2100
Tax savings from lease                840
net cash cost                           -1260
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