W9

A firm reports (all $m): Inventory=120, Accounts receivable=90, Accounts payable=80. Annual sales=1,825 and annual cost of goods sold (COGS)=1,460. Assuming 365-day year and using the standard approximations, what is the firm’s cash cycle?

Akron Wire Products uses 255,000 tons/year, order cost is $450 per order. If carrying cost rises from $55/ton-year to $75/ton-year (all else unchanged), what happens to EOQ (economic order quantity)?

A supplier offers terms of 3/10, net 90. If a buyer forgoes the discount and pays on day 90 instead of day 10, which is closest to the implied effective annual interest rate (EAR) on the extra credit?

A firm sells on terms 2/10, net 30. Historically, 65% of customers take the discount and pay on day 10; the rest pay on day 30. Ignoring defaults, what is the average collection period?

A firm is considering granting credit on an initial order. If the customer pays, PV(revenues) = $1,200 and PV(costs) = $1,000; probability of payment on the first order is p1=0.8. If the customer pays, there will be a repeat order next year with expected profit of $140 (in PV terms), which occurs only if the first order is paid. Ignoring discounting beyond the stated PVs, should the firm grant credit?

A buyer faces terms 2/10, net 30 and can borrow short-term at 12% per year to pay early. Which policy maximizes value (ignore transaction costs)?