Question

Parramore Corp has $10 million of sales, $1 million of inventories, $2.5 million of receivables, and $1 million of payables. Its cost of goods sold is 65% of sales, and it finances working capital with bank loans at a 7% rate. Assume 365 days in year for your calculations 1. What is Parramore's cash conversion cycle (CCC)? Do not round intermediate calculations. Round your answer to two decimal places days 2. If Parramore could lower its inventories and receivables by 9% each and increase its payables by 9%, 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 3. How much cash would be freed up, if Parramore could lower its inventories and receivables by 9% each and increase its payables by 9%, all without affecting sales or cost of goods sold? Write out your answer completely. For example, 13.2 million should be entered-as 13,200,000. Do not round intermediate calculations. Round your answer to the nearest dollar. 4. By how much would pretax profits change, if Parramore could lower its inventories and receivables by 9% each and increase its payables by 9%, all without affecting sales or cost of goods sold? Write out your answer completely. For example, 13.2 million should be entered as 13,200,000. Do not round intermediate calculations. Round your answer to the nearest dollar.

Answer 1

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VD 2 0652 ENG 14 01 2020 2 HX2125 x for HN HO HM HT HU HV HW HX HY HP ANS 1 HQ HR HS CASH CONVERSION CYCLE = ICP + ACP - APP ICP = INVENTORY CONVERSION PERIOD ICP = 365 DAYS X AVERAGE INVENTORY/ COST OF GOODS SOLD ICP = (365 X 1)/(10 X65%) 56.1538 ACP = AVERAGE COLLECTION PERIOD ACP = 365 DAYS X AVERAGE RECEIVABLES/ SALES 2092 2093 2094 2095 2096 2097 2098 2099 2100 2101 2102 2103 2104 2105 2106 2107 2108 2109 2110 2111 ACP = (365 X 2.5)/10 91.2500 APP = AVERAGE PAYABLES PERIOD ACP = 365 DAYS X AVERAGE PAYABLES/ COST OF GOOD SOLD APP = (365 X 1)/(10*65%) 56.1538 DAYS 91.25 CASH CONVERSION CYCLE = ICP + ACP-APP = ANS 2 2112 2113 ICP = INVENTORY CONVERSION PERIOD ICP = 365 DAYS X AVERAGE INVENTORY/ COST OF GOODS SOLD 2114 2115 2116 2117 2118 ICP = (365 X 1 X 91%)/(10 X65%) 51.1000 2119 ACP = AVERAGE COLLECTION PERIOD ACP = 365 DAYS X AVERAGE RECEIVABLES/ SALES 45 days cycle ROE, BV MV 1 alio VARIANCE DEP, OLFL alius 2120 FIFO CASH BUDGET budget DETROIT Moal B-S prolil luss SALES BUDGET dupont | DIFF ANALYSIS ... :

1 Le W VD x 9 0652 ENG 14 01 2020 22 HX2111 for - HM HN HO HP HQ HR HS HT H U HV HW HY 21111 2112 ANS 2 2113 2114 ICP = INVENTORY CONVERSION PERIOD ICP = 365 DAYS X AVERAGE INVENTORY/ COST OF GOODS SOLD 2115 ICP = (365 X 1 X 91%)/(10 X65%) 51.1000 ACP = AVERAGE COLLECTION PERIOD ACP = 365 DAYS X AVERAGE RECEIVABLES/ SALES ACP = (365 X 2.5 X 91%)/10 83.0375 APP = AVERAGE PAYABLES PERIOD ACP = 365 DAYS X AVERAGE PAYABLES/ COST OF GOOD SOLD 2116 2117 2118 2119 2120 2121 2122 2123 2124 2125 2126 2127 2128 2129 2130 2131 2132 2133 2134 APP = (365 X 1 x 1.09)/(10*65%) 61.2077 DAYS 72.93 CASH CONVERSION CYCLE = ICP + ACP-APP = ANS 3 CASH FREED UP WILL BE = 2.5 -2.095 = = ANSWER IS = 0.405 MILLION = 0.405 405000 MILLION NOTE 2135 ADD LESS INVESTMENT IN INVENTORIES = INVESTMENT IN RECEIVABLES = INVESTMENT IN PAYABLES = NET INVESTMENT = 2.5 1 2.5 2136 2137 2138 2139 FIFO CASH BUDGET budget 45 days AFTER 9% CHANGE cycle ROE, BV MV 1 alio VARIANCE BEP, OL FL Talius DETROIT loal B-S profil luss SALES BUDGET dupont DIFF ANALYSIS ...

VD x 9 0653 ENG 14 01 2020 22 HX2130 for - HM x V HN HO HP HQ HR HS HT HU HV HW HY ANS 3 2130 2131 2132 2133 CASH FREED UP WILL BE = 2.5-2.095 = = ANSWER IS = 0.405 MILLION = 0.405 405000 MILLION NOTE 2134 2.5 ADD LESS INVESTMENT IN INVENTORIES = INVESTMENT IN RECEIVABLES = INVESTMENT IN PAYABLES = NET INVESTMENT = ADD LESS AFTER 9% CHANGE INVESTMENT IN INVENTORIES = INVESTMENT IN RECEIVABLES = INVESTMENT IN PAYABLES = NET INVESTMENT = 0.910 (1 X 91%] 2.275 (2.5 X 91%] 1.090 [1 X 109%] 2.095 ANS 4 7% 2135 2136 2137 2138 2139 2140 2141 2142 2143 2144 2145 2146 2147 2148 2149 2150 2151 2152 2153 2154 2155 2156 2157 2158 CASH FREED UP = 405000 INTEREST RATE ON WORKING CAPITAL LOAN = SO PRE TAX PROFIT WILL INCREASE BY SAVING ON INTEREST, THAT IS 405000 X 7% = 28,350 ANSWER = $ 28,350 FIFO CASH BUDGET budget 45 days cycle ROE, BV MV Ialio VARIANCE BEP, OL FL alius DETROIT lloal B-S profil loss SALES BUDGET dupont DIFF ANALYSIS ...