Answer to Question #7089 in Finance for LaMarcus Streeter

Question #7089
4. Your consulting firm was recently hired to improve the performance of Shin-Soenen Inc, which is highly profitable but has been experiencing cash shortages due to its high growth rate. As one part of your analysis, you want to determine the firm’s cash conversion cycle. Using the following information and a 365-day year, what is the firm’s present cash conversion cycle?
Average inventory = $75,000
Annual sales = $600,000
Annual cost of goods sold = $360,000
Average accounts receivable = $160,000
Average accounts payable = $25,000

a. 120.6 days
b. 126.9 days
c. 133.6 days
d. 140.6 days
e. 148.0 days
Expert's answer
The answer is E.
A maturity matching policy is when fixed assets and
permanent current assets are financed with long-term sources. as the minimum
balance that total assets approach is $320,000, and $260,000 of that is fixed
assets, permanent current assets are $60,000. The likely level of long-term
financing is $320,000.
Long-term debt financing = Permanent cash assets +
Fixed assets.
Permanent cash assets = Low end of total assets - Fixed assets
= $320,000 - $260,000 = $60,000.
Long-term debt financing = $60,000 +
$260,000 = $320,000.

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