Question

CASH CONVERSION CYCLE

Parramore Corp has $20 million of sales, $2 million of inventories, $3 million of receivables, and $3 million of payables. Its cost of goods sold is 65% of sales, and it finances working capital with bank loans at an 8% rate. Assume 365 days in year for your calculations. Do not round intermediate steps.

1. What is Parramore's cash conversion cycle (CCC)? Do not round intermediate calculations. Round your answer to two decimal places.
   =______ days
2. 
   
3. If Parramore could lower its inventories and receivables by 12% each and increase its payables by 12%, 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
4. 
   
5. How much cash would be freed up, if Parramore could lower its inventories and receivables by 12% each and increase its payables by 12%, 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.
   $_______
6. 
   
7. By how much would pretax profits change, if Parramore could lower its inventories and receivables by 12% each and increase its payables by 12%, 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 Insert Delete Format Σ AutoSum : A Fill Sort & 2 Clear Filter Editing Find & Select Cells HX HY HZ ACCOUNTS latest - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins * Cut Calibri 11 A A = = = V Wrap Text General E Copy Paste BI U D- DA Merge & Center - $ % Format Painter , :.: Conditional Format Cell Formatting as Table Styles Clipboard Font Alignment Number Styles HW1287 _ HN HO HP HQ HR HS HT HU HV HW 1283 parramore 1284 ANS 1 CASH CONVERSION CYCLE - ICP + ACP - APP 1285 1286 ICP = INVENTORY CONVERSION PERIOD 1287 ICP = 365 DAYS X AVERAGE INVENTORY/ COST OF GOODS SOLD 1288 1289 ICP = (365 X 2)/(20 X65%) 56.1538 1290 1291 ACP = AVERAGE COLLECTION PERIOD ACP = 365 DAYS X AVERAGE RECEIVABLES/ SALES 1293 1294 ACP = (365 X 3)/20 54.7500 1295 1296 APP = AVERAGE PAYABLES PERIOD 1297 ACP = 365 DAYS X AVERAGE PAYABLES/ COST OF GOOD SOLD 1298 1299 APP = (365 X 3)/(20*65%) 84.2308 1300 DAYS 1301 CASH CONVERSION CYCLE = ICP + ACP - APP = 26.67 1302 1303 H FIFO CASH BUDGET budget 45 days cycle ROE, BV MV ratio VARIANCE BEP, OL FL_ratios DETROIT float B-S profit loss Rea ferences: 569 1292 SALES BUDGET dupont DIFF ANALYSIS ovel BOU 120% -_- ... * * *O ENG 23-11-2019

ACCOUNTS latest - Microsoft Excel (Product Activation Failed) View Add-Ins File Home Insert Page Layout Formulas Data Review - 2x % Cut Insert Delete Format Σ AutoSum : A Fill Sort & 2 Clear Filter Editing Find & Select Cells HX HY HZ Calibri -11AA = = = Dr Wrap Text General E Copy Paste BI U Format Painter D- DA Merge & Center - $ % , Conditional Format :.: Cell Formatting as Table Styles Clipboard Font Alignment Number Styles HT1303 fic A HN HO HP HQ HR HS HT HU HV HW 1302 1303 1304 ANS 2 1305 ICP = INVENTORY CONVERSION PERIOD 1306 ICP = 365 DAYS X AVERAGE INVENTORY/ COST OF GOODS SOLD 1307 1308 ICP = (365 X 2 X 88%)/(20 X65%) 49.4154 1309 1310 ACP = AVERAGE COLLECTION PERIOD 1311 ACP = 365 DAYS X AVERAGE RECEIVABLES/ SALES 1312 1313 ACP = (365 X 3 X 88%)/20 48.1800 1314 1315 APP = AVERAGE PAYABLES PERIOD 1316 ACP = 365 DAYS X AVERAGE PAYABLES/ COST OF GOOD SOLD 1317 1318 APP = (365 X 3 x 1.12)/(20*65%) 94.3385 1319 DAYS 1320 CASH CONVERSION CYCLE = ICP + ACP - APP = 3.26 1321 1322 H FIFO CASH BUDGET budget 45 days cycle ROE, BV MV ratio VARIANCE BEP, OL FL_ratios DETROIT float B-S profit loss Rea ferences: 569 SALES BUDGET dupont DIFF ANALYSIS ovel BOU 120% -_- ... * * *O ENG 23-11-2019

- 2x Insert Delete Format Σ AutoSum : A Fill Sort & 2 Clear Filter Editing Find & Select Cells HX HY HZ 1327 ACCOUNTS latest - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins * Cut Calibri -11AA = = = Dr Wrap Text General E Copy Paste BI U Format Painter D- DA Merge & Center - $ % , Conditional Format :.: Cell Formatting as Table Styles Clipboard Font Alignment Number Styles HT1322 fic HN HO HP HQ HR HS HT HU HU HW 1322 1323 ANS 3 CASH FREED UP WILL BE = 2 -1.04 = 0.96 1324 ANSWER IS = 0.96 MILLION = 960000 1325 NOTE MILLION 1326 INVESTMENT IN INVENTORIES = ADD INVESTMENT IN RECEIVABLES = 1328 INVESTMENT IN PAYABLES = 1329 NET INVESTMENT = 1330 1331 AFTER 12 % CHANGE 1332 INVESTMENT IN INVENTORIES = 1.76 [2 x 88%] 1333 ADD INVESTMENT IN RECEIVABLES = 2.64 [3 X 88%] 1334 INVESTMENT IN PAYABLES = 3.36 (3 X 1.12] 1335 NET INVESTMENT = 1.04 1336 1337 ANS 4 CASH FREED UP = 960000 1338 INTEREST RATE ON WORKING CAPITAL LOAN = 8% 1339 SO PRE TAX PROFIT WILL INCREASE BY SAVING ON INTEREST, THAT IS 1340 960000 X 8% = $ 76,800 1341 ANSWER = $ 76,800 1342 H FIFO CASH BUDGET budget 45 days cycle ROE, BV MV ratio VARIANCE BEP, OL FL_ratios DETROIT float B-S profit loss Rea ferences: 569 Nw wn LESS LESS SALES BUDGET dupont DIFF ANALYSIS ovel BOU 120% -_- ... * * *O ENG 23-11-2019