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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)
|
|
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
|
$ 7,250
|
Total current liabilities
Long-term debt
|
$ 3,720
3,000
|
|
Net plant, property,
and equipment
|
$ 8,500
|
Total liabilities
Common equity
|
$ 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.
