Using your own words, describe the key elements of the cash realization model. For each element described, discuss what role the element plays in the cash realization cycle.

DOLLAR BILL'S, a retail store in New York City, buys its inventory on credit. Upon purchase, it is given 30 days in which to pay its suppliers.  It sells all of its merchandise on credit.  It extends 60 days of credit to its customers Its inventory turnover rate is 60 days.

Situation 1
Using the Cash Conversion Model, measure DOLLAR BILL'S financing cycle in both days and money ($US) using the following assumptions:

• Sales of $730,000
• Gross Margin of 30%
• Financing Rate 6.5%

Situation 2
Recent management decisions have had the following impact:

• DOLLAR BILL has renegotiated its credit line so that it has 35 days to pay its suppliers
• It now extends 45 days of credit to its customers,
• It has an inventory turnover rate of 45 days.

All other factors remain the same.  Has DOLLAR BILL'S financing cycle improved or declined?  Quantify the change in days and in dollars. Please show your work.

 

Question:

 

Please compose at least three well-composed paragraphs that describe examples of business financing that would support short-term assets. 

What kind of financing would be appropriate for supporting long-term assets? Please explain your answers.

Answer rating: 100% (QA)

The key elements of the cash realization model include the credit terms for both suppliers and customers the inventory turnover rate and the financing rate Each of these elements plays a specific role ... View the full answer