# E15-1, e15-2, e15-3, e15-4, e15-5 solution attached

E15-1 Sharam Industries has a 120-day operating cycle. Ifits average age of inventory is 50 days, how long is its average collectionperiod? If its average payment period is 30 days, what is its cash conversioncycle? Place all of this information on a time line similar to Figure 15.2 on page605.E15-2 Icy Treats, Inc., is a seasonal business that sellsfrozen desserts. At the peak of its summer selling season the firm has \$35,000in cash, \$125,000 in inventory, \$70,000 in accounts receivable, and \$65,000 inaccounts payable. During the slow winter period the firm holds \$10,000 in cash,\$55,000 in inventory, \$40,000 in accounts receivable, and \$35,000 in accountspayable. Calculate Icy Treats’ minimum and peak funding requirements.E15-3 Mama Leone’s Frozen Pizzas uses 50,000 units of cheeseper year. Each unit costs \$2.50. The ordering cost for the cheese is \$250 perorder, and its carrying cost is \$0.50 per unit per year. Calculate the firm’seconomic order quantity (EOQ) for the cheese. Mama Leone’s operates 250 daysper year and maintains a minimum inventory level of 2 days’ worth of cheese asa safety stock. If the lead time to receive orders of cheese is 3 days,calculate the reorder point.E15-4 Forrester Fashions has annual credit sales of 250,000units with an average collection period of 70 days. The company has a per-unitvariable cost of \$20 and a per-unit sale price of \$30. Bad debts currently are5% of sales. The firm estimates that a proposed relaxation of credit standardswould not affect its 70-day average collection period but would increase baddebts to 7.5% of sales, which would increase to 300,000 units per year.Forrester requires a 12% return on investments. Show all necessary calculationsrequired to evaluate Forrester’s proposed relaxation of credit standards.E15-5 Klein’s Tools is considering offering a cash discountto speed up the collection of accounts receivable. Currently the firm has anaverage collection period of 65 days, annual sales are 35,000 units, theper-unit price is \$40, and the per-unit variable cost is \$29. A 2% cashdiscount is being considered. Klein’s Tools estimates that 80% of its customerswill take the 2% discount. If sales are expected to rise to 37,000 units peryear and the firm has a 15% required rate of return, what minimum averagecollection period is required to approve the cash discount plan?

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