Finance Question 52

Question Description

Chapter 15: P1

1 Pretty Lady Cosmetic Products has anaverage production process time of 40 days. Finished goods are kept on hand foran average of 15 days before they are sold. Accounts receivable are outstandingan average of 35 days, and the firm receives 40 days of credit on its purchasesfrom suppliers.

  1. Estimate the average length of thefirm’s short-term operating cycle. How often would the cycle turn over ina year?
  1. Assume net sales of $1,200,000 andcost of goods sold of $900,000. Determine the average investment inaccounts receivable, inventories, and accounts payable. What would be thenet financing need considering only these three accounts?

Chapter 16: P1

1 A supplier is offering

your firm a cash discount of 2 percent if purchases are paid for within ten

days; otherwise, the bill is due at the end of 60 days. Would you recommend

borrowing from a bank at an 18 percent annual interest rate to take advantage

of the cash discount offer? Explain your answer.

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