Answer:
A total of $600,000 is needed for financing to support the cash conversion cycle
Explanation:
To determine the financing requirement, we start by calculating the cash conversion payable illustrated as follows:
Cash conversion cycle = Average inventory age + Average collection duration - Average payment time
= 65 + 60 - 65
= 60 days
Next, we must utilize the financing equation shown below:
= Total annual operating cycle outlays × cash conversion cycle ÷ total days in a year
= $3,650,000 × 60 days ÷ 365
= $3,650,000 × 0.16438
= $600,000
Hence, a financing amount of $600,000 is essential to sustain the cash conversion cycle.
No, this arrangement violates the AICPA Code of Conduct. The firm's fee is entirely contingent upon the success of their work, whereas the Code permits compensation based on effort but not solely on outcome. Since there is no guaranteed fee unless tax credits are awarded, this opens the door to potential misconduct by the firm. To prevent such risks, the Code disallows fees that depend exclusively on the achievement of tax credits.
