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:
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THE GREEK CONNECTION
Balance Sheet
As of December 31, 2012 (in $ thousand)
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Assets
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Liabilities and Equity
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Cash
Accounts receivable
Inventory
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$ 2,000
3,950
1,300
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Accounts payable
Notes payable
Accruals
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$ 1,500
1,000
1,220
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Total current assets
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mce_markernbsp; 7,250
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Total current liabilities
Long-term debt
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mce_markernbsp; 3,720
3,000
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Net plant, property,
and equipment
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mce_markernbsp; 8,500
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Total liabilities
Common equity
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mce_markernbsp; 6,720
9,030
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Total assets
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$ 15,750
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Total liabilities and equity
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$ 15,750
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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.
Chapter 27 (page 925):
1.Which of the following companies are likely to have high short-term financing needs? Why?
a. A clothing retailer
b. A professional sports team
c. An electric utility
d. A company that operates toll roads
e. A restaurant chain
2.Sailboats Etc. is a retail company specializing in sailboats and other sailing-related equipment. The following table contains financial forecasts as well as current (month 0) working capital levels. During which months are the firm's seasonal working capital needs the greatest? When does it have surplus cash?
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Month
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($000)
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0
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1
|
2
|
3
|
4
|
5
|
6
|
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Net Income
|
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$10
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$12
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$15
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$25
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$30
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$18
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Depreciation
|
|
2
|
3
|
3
|
4
|
5
|
4
|
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Capital Expenditures
|
|
1
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0
|
0
|
1
|
0
|
0
|
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Levels of Working Capital
|
|
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Accounts Receivable
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$2
|
3
|
4
|
5
|
7
|
10
|
6
|
|
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Inventory
|
3
|
2
|
4
|
5
|
5
|
4
|
2
|
|
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Accounts Payable
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2
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2
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2
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2
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2
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2
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2
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