15-2. The Robinson Company has the following current assets and
current liabilities for these two years:
2013 2014
Cash and marketable securities $50,000 $ 50,000
Accounts receivable 300,000 350,000
Inventories 350,000 500,000
Total current assets $700,000 $900,000
Accounts payable $200,000 $250,000
Bank loan 0 150,000
Accruals 150,000 200,000
Total current liabilities $350,000 $600,000
If sales in 2013 were $1.2 million, sales in 2014 were $1.3 million, and
cost of goods sold was 70 percent of sales, how long were Robinson’s
operating cycles and cash conversion cycles in each of these years?
What caused them to change during this time?
15- 4. Suppose the Robinson Company had a COGS of $1,000,000 in
2013 and $1,200,000 in 2014.
a. Calculate the inventory turnover for each year. Comment on
your findings.
b. What would have been the amount of inventories in 2014 if
the 2013 turnover ratio had been maintained?
15-5. Given Robinson’s 2013 and 2014 financial information presented
in problems 2 and 4,
a. Compute its operating and cash conversion cycle in each year.
b. What was Robinson’s net investment in working capital each year?
15-6. Robinson expects its 2015 sales and cost of goods sold to grow by
5 percent over their 2014 levels.
a. What will be the affect on its levels of receivables, inventories,
and payments if the components of its cash conversion cycle
remain at their 2014 levels? What will be its net investment in
working capital?
b. What will be the impact on its net investment in working
capital in 2015 if Robinson is able to reduce its collection
period by fi ve days, reduce its inventory period by six days,
and increase its payment period by two days?
15-7. Robinson expects its 2015 sales and cost of goods sold to grow by
20 percent over their 2014 levels.
a. What will be the affect on its levels of receivables, inventories,
and payments if the components of its cash conversion cycle
remain at their 2014 levels? What will be its net investment in
working capital?
b. What will be the impact on its net investment in working capital
in 2015 if Robinson can reduce its inventory period by ten days?
16-4. Compute the effective cost of not taking the cash discount under
the following trade credit terms:
a. 2/10 net 40
b. 2/10 net 50
c. 3/10 net 50
d. 2/20 net 40
16-5. What conclusions can you make about credit terms from reviewing
your answers to Problem 4?
16-7. Bank A offers loans with a 10 percent stated annual rate and a 10
percent compensating balance. You wish to obtain $250,000 in a six month
loan.
a. How much must you borrow to obtain $250,000 in usable
funds? Assume you do not have any funds on deposit at the
bank. What is the effective annual rate on a six-month loan?
b. How much must you borrow to obtain $250,000 in usable
funds if you currently have $10,000 on deposit at the bank?
What is the effective annual rate on a six-month loan?
c. How much must you borrow to obtain $250,000 in usable
funds if you have $30,000 deposited at the bank?
d. What is the effective annual rate on a six-month loan?
