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Chastain Corporation is trying to determine the effect of its inventory turnover ratio and days sales outstanding (DSO) on its cash conversion cycle. Chastain’s 2016 sales (all on credit) were $121,000; its cost of goods sold is 80% of sales; and it earned a net profit of 2%, or$2,420. It turned over its inventory 7 times during the year, and its DSO was 37 days. The firm had fixed assets totaling $42,000. Chastain’s payables deferral period is 35 days. a. Calculate Chastain’s cash conversion cycle. b. Assuming Chastain holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. c. Suppose Chastain’s managers believe that the inventory turnover can be raised to 9.9 times. What would Chastain’s cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 9.9 for 2016?

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The equation used to find the cash conversion cycle is posted below, this will be used multiple times in this problem. Below this equation there will be several other equations posted which will help us find what we are looking for in this problem-

CCC\textbf{CCC}= Inventory conversion period++Average collection period-Payable deferral period

Cost of goods sold\textbf{Cost of goods sold}= Sales×\timesCost of goods sold percentage

Total inventory\textbf{Total inventory}= SalesInventory turnover ratio\dfrac{\text{Sales}}{\text{Inventory turnover ratio}}

Inventory conversion period\textbf{Inventory conversion period}= InventoryCost of goods sold per day\dfrac{\text{Inventory}}{\text{Cost of goods sold per day}}

Accounts receivable\textbf{Accounts receivable}=Payment period ×Sales365\times\dfrac{\text{Sales}}{365}

Total assets\textbf{Total assets}=Fixed assets++Accounts receivable++Inventory

Total asset turnover\textbf{Total asset turnover}= SalesTotal assets\dfrac{\text{Sales}}{\text{Total assets}}

ROA\textbf{ROA}=Net IncomeTotal assets\dfrac{\text{Net Income}}{\text{Total assets}}

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