Question

Click here to read the eBook: The Cash Conversion Cycle Problem Walk-Through CASH CONVERSION CYCLE Parramore Corp has $17 million of sales, $3 million of inventories, $4 million of receivables, and $2 million of payables. Its cost of goods sold is 85% of sales, and it finances working capital with bank loans at an 9% rate. Assume 365 days in year for your calculations. Do not round intermediate steps. What is Parramore's cash conversion cycle (CCC)? Do not round intermediate calculations. Round your answer to two decimal places.   days If Parramore could lower its inventories and receivables by 11% each and increase its payables by 11%, all without affecting sales or cost of goods sold, what would be the new CCC? Do not round intermediate calculations. Round your answer to two decimal places.   days How much cash would be freed up, if Parramore could lower its inventories and receivables by 11% each and increase its payables by 11%, all without affecting sales or cost of goods sold? Do not round intermediate calculations. Round your answer to the nearest cent. Write out your answer completely. For Example, 13.2 million should be entered as 13,200,000. $ By how much would pretax profits change, if Parramore could lower its inventories and receivables by 11% each and increase its payables by 11%, all without affecting sales or cost of goods sold? Do not round intermediate calculations. Round your answer to the nearest cent. Write out your answer completely. For Example, 13.2 million should be entered as 13,200,000. $

Answer 1

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- 2x HZ ACCOUNTS latest - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins % Cut Σ AutoSum : A Calibri -11AA = = = Dr Wrap Text General Ea Copy Fill Paste U D- DA BI Merge & Center - $ % , :.: Conditional Format Cell Insert Delete Format Sort & Find & Format Painter Formatting as Table Styles 2 Clear Filter Select Clipboard Font Alignment Number Styles Cells Editing HX1654 Fax 2 HN HOHP HQ HR HS HT HU HV HW H X HY 1654 PARRAMORE 1655 ANS 1 CASH CONVERSION CYCLE - ICP + ACP - APP 1656 1657 ICP = INVENTORY CONVERSION PERIOD 1658 ICP = 365 DAYS X AVERAGE INVENTORY/ COST OF GOODS SOLD 1659 1660 ICP = (365 X 3)/(17 X 85%) 75.7785 1661 1662 ACP = AVERAGE COLLECTION PERIOD 1663 ACP = 365 DAYS X AVERAGE RECEIVABLES/ SALES 1664 1665 ACP = (365 X 4)/17 85.8824 1666 1667 APP = AVERAGE PAYABLES PERIOD 1668 ACP = 365 DAYS X AVERAGE PAYABLES/ COST OF GOOD SOLD 1669 1670 APP = (365 X 2)/(17*85%) 50.5190 1671 DAYS 1672 CASH CONVERSION CYCLE = ICP + ACP - APP = 111.14 (A+B-C) 1673 1674 H FIFO CASH BUDGET budget 45 days cycle ROE, BV MV ratio VARIANCE BEP, OL FL_ratios DETROIT float B-S profit loss SALES BUDGET dupont DIFF ANALYSIS ovel Rea ferences: R46 BOU 120% -_- OPER 9 * * OENG 20-11-2019

- 2x 3 D Autosum Y A HZ ACCOUNTS latest - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins * Cut Σ AutoSum : A Calibri -11AA = = = Dr Wrap Text General E Copy Fill Paste B I - U D A Merge & Center $ - % 8. Conditional Format Sort & Find & Format Painter Cell Insert Delete Format Formatting as Table Styles 2 Clear Filter Select Clipboard Font Alignment Number Styles Cells Editing HX1692 - fic HN HO HP HQ HR H S HT HU HU HW HX HY 1673 1674 1675 ANS 2 1676 ICP = INVENTORY CONVERSION PERIOD 1677 ICP = 365 DAYS X AVERAGE INVENTORY/ COST OF GOODS SOLD 1678 1679 ICP = (365 X 3 X 89%)/(17 X 85%) 67.4429 1680 ACP = AVERAGE COLLECTION PERIOD 1682 ACP = 365 DAYS X AVERAGE RECEIVABLES/ SALES 1683 1684 ACP = (365 X 4 X 89%)/17 76.4353 1685 1686 APP = AVERAGE PAYABLES PERIOD 1687 ACP = 365 DAYS X AVERAGE PAYABLES/ COST OF GOOD SOLD 1688 1689 APP = (365 X 2 X 1.11)/(17*85%) 56.0761 1690 DAYS 1691 CASH CONVERSION CYCLE = ICP + ACP - APP = 87.80 (A+B-C) 1692 1693 H FIFO CASH BUDGET budget 45 days cycle ROE, BV MV ratio VARIANCE BEP, OL FL_ratios DETROIT float B-S profit loss SALES BUDGET dupont DIFF ANALYSIS ovel Rea ferences: R46 BOU 120% EJEND O 1681 -_- LA ENG 20-11-2019

ACCOUNTS latest - Microsoft Excel (Product Activation Failed) View Add-Ins File Home Insert Page Layout Formulas Data Review - 2x % Cut Σ AutoSum : A Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Fill 2 Clear Sort & Find & Filter Select Editing Cells H V HW HX HY HZ Calibri -11AA = = = Dr Wrap Text General E Copy Paste Format Painter BI U D- DA Merge & Center - $ % , :.: Clipboard Font Alignment Number HX1712 2 HN HO HP HQ HR HS HT HU 1693 1694 ANS 3 CASH FREED UP WILL BE = 990000 1695 ANSWER IS = 5-4.01 = 0.99 MILLION 1696 NOTE MILLION 1697 INVESTMENT IN INVENTORIES = 1698 ADD INVESTMENT IN RECEIVABLES = 1699 INVESTMENT IN PAYABLES = 1700 NET INVESTMENT = 1701 1702 AFTER 8 % CHANGE 1703 INVESTMENT IN INVENTORIES = 2.67 [=3*89%] 1704 ADD INVESTMENT IN RECEIVABLES = 3.56 [=4*89%] 1705 INVESTMENT IN PAYABLES = 2.22 [=12*1.11)] 1706 NET INVESTMENT = 4.01 LESS LESS 1707 ANS 4 1708 1709 1710 1711 1712 1713 H Rea CASH FREED UP = 990000 INTEREST RATE ON WORKING CAPITAL LOAN =9% SO PRE TAX PROFIT WILL INCREASE BY SAVING ON INTEREST, THAT IS 990000 x 9% 89100 ANSWER = $ 89,100 FIFO budget 45 days cycle ROE, BV MV ratio VARIANCE BEP, OL FL_ratios DETROIT float B-S profit loss SALES BUDGET dupont CASH BUDGET ferences: R46 DIFF ANALYSIS ovel BOU 120% -_- ODEB OENG 20-11-2019