3 FINANCE PROBLEMS :

 

QUESTIONS :

 

Problem 1:  

 

Pretty Lady Cosmetic Products has an average productions process time of forty days. Finished goods are kept on hand for an average of fifteen days before they are sold. Accounts receivable are outstanding an average of thirty-five days, and the firm receives forty days of credit on its purchases from supplies.

1. Estimate the average length of the firm’s short-term operating cycle. How often would the cycle turn over in a year?

2. Assume net sales of $1,200,000 and cost of goods sold of $900,000. Determine the average investment in accounts receivable, inventories, and accounts payable. What would be the net financing need considering only these three accounts?.

    

   Problem 2 :

    

   Compute the effective coast of not taking the cash discount under the following trade credit terms:

   2/10 net 402/10 net 503/10 net 502/20 net 40

   Problem 3:

    

   What conclusions can you make about credit terms from reviewing your answers to Problem 4?