1. Data on Liu Inc. for the most recent year are shown below, along with the inventory conversion period (ICP) of the firms against which it benchmarks. The firm’s new CFO believes that the company could reduce its inventory enough to reduce its ICP to the benchmarks’ average. If this were done, by how much would inventories decline? Use a 365day year. Cost of goods sold = \$85,000 Inventory = \$20,000 Inventory conversion period (ICP) = 85.88 Benchmark inventory conversion period (ICP) = 38.00 (Points : 10) \$ 7,316 \$ 8,129 \$ 9,032 \$10,036 \$11,151 Question 2. 2. Data on Mertz Co., for the most recent year are shown below, along with the payables deferral period (PDP) for the firms against which it benchmarks. The firm’s new CFO believes that the company could delay payments enough to

increase its PDP to the benchmarks’ average. If this were done, by how much would payables increase? Use a 365day year. Cost of goods sold = \$75,000 Payables = \$5,000 Payables deferral period (PDP) = 24.33 Benchmark payables deferral period = 30.00 (Points : 10) \$ 764 \$ 849 \$ 943 \$1,048 \$1,164 Question 3. 3. Shulman Inc. has the following data, in thousands. Assuming a 365-day year, what is the firm’s cash conversion cycle? Annual sales = \$45,000 Annual cost of goods sold = \$30,000 Inventory = \$4,500 Accounts receivable = \$1,800 Accounts payable = \$2,500 (Points : 10) 28 Days 32 Days 35 Days 39 Days 43 Days Question 4. 4. Howes Inc. purchases \$4,562,500 in goods per year from its sole supplier on terms of 2/15, net 50. If the firm chooses to pay on time but does not take the discount, what is the effective annual percentage cost of its non-free trade credit? (Assume a 365-day year.) (Points : 10) 20.11% 21.17% 22.28% 23.45% 24.63% Question 5. 5. Noddings Inc.’s business is booming, and it needs to raise more capital. The company purchases supplies on terms of 1/10 net 20, and it currently takes the discount. One way of getting the needed funds would be to forgo the discount, and the firm’s owner believes she could delay payment to 40 days without adverse effects. What would be the effective annual percentage cost of funds raised by this action? (Assume a 365-day year.) (Points : 10) 10.59% 11.15% 11.74% 12.36% 13.01%

flotation costs on this issue would be 2% of the amount of bonds sold. What is the net present value of the refunding? Note that cities pay no income taxes, hence taxes are not relevant. (Points : 20)

Download data on liu inc for the most recent year are shown below
Download data on liu inc for the most recent year are shown below