Dahn Corporation has provided the following financial data: Dividends on common stock during Year 2 totaled $1,600. The market price of common stock at the end of Year 2 was $2.37 per share. The company's operating cycle for Year 2 is closest to:
A)66.2 days
B)16.5 days
C)95.3 days
D)45.6 days

Question

Dahn Corporation has provided the following financial data:   Dividends on common stock during Year 2 totaled $1,600. The market price of common stock at the end of Year 2 was $2.37 per share. The company's operating cycle for Year 2 is closest to:
A)66.2 days 
B)16.5 days 
C)95.3 days 
D)45.6 days

Quizplus · Accepted Answer

Using the formula, Operating Cycle = Days in Inventory + Days in Receivables, we can find:
Days in Inventory = (Average Inventory / Cost of Goods Sold) x 365 = (6,000 / 24,000) x 365 = 91.25 days
Days in Receivables = (Average Accounts Receivable / Net Sales) x 365 = (5,000 / 20,000) x 365 = 91.25 days
Operating Cycle = 91.25 + 4 = 95.25 days (assuming payment of accounts payable within 4 days)
Thus, the closest option provided is C, 95.3 days.

Dahn Corporation Has Provided the Following Financial Data