Ridgill Industries currently has $51,500 in cash, $60,000 in accounts receivable, $63,750 in inventories, $21,500 in accrued liabilities, and $90,000 in accounts payable on its balance sheet. The firm's production manager has determined that the cost of goods sold accounts for 75% of the sales revenue produced, where Ridgill's sales are $456,250.
Ridgill's CFO is interested in determining the length of time funds are tied up in working capital. Use the information given above to answer the following questions. (Note: Use 365 days as the length of a year in all calculations and round all values to two decimal places.)
1. What is Ridgill's inventory conversion period? *
a) 20 days
b) 48 days
c) 68 days
d) 96 days
e) None of the above
2. What is Ridgill's average collection period? *
a) 20 days
b) 48 days
c) 68 days
d) 96 days
e) None of the above
3. What is Ridgill's payable deferral period? *
a) 20 days
b) 48 days
c) 68 days
d) 96 days
e) None of the above
4. What is the length of the firm's cash conversion cycle? *
a) 20 days
b) 48 days
c) 68 days
d) 96 days
e) None of the above
5. Assume Ridgill's CFO wants to decrease the cash conversion cycle by 10 days, based on a 365-day year. He believes he can reduce the average inventory to $59,000 with no effect on sales and payables. By how much must the firm also reduce its accounts receivable to meet its goal in the reduction of the cash conversion cycle? *
a) $6,162.5
b) $53,837.5
c) $60,000
d) $59,000
e) None of the above
