Question

Parramore Corp has $18 million of sales, $3 million of inventories, $4 million of receivables, and $1 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.

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 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
4. 
   
5. 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.
   $
6. 
   
7. 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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ACCOUNTS latest - Microsoft Excel (Product Activation Failed) Review File Home Insert Page Layout Formulas Data View Add-Ins Σ AutoSum - Cut A A Wrap Text Calibri 11 General E Copy Fill Merge & Center Insert Delete Format Sort & Find & Filter Select Paste В IU- +.0 .00 Conditional Format Cell % .00 0 Format Painter Clear Formatting as Table Styles Number Clipboard Font Alignment Styles Cells Editing HV1719 НР HR HT НХ HN Но но HS HU HV HW HY HZ 1715 1716 1717 ANS 1 CASH CONVERSION CYCLE = ICP ACP - APP 1718 ICP INVENTORY CONVERSION PERIOD ICP 365 DAYS X AVERAGE INVENTORY/ COST OF GOODS SOLD 1719 1720 1721 (365 X 3)/(18 X 85%) 1722 ICP 71.5686 A 1723 1724 ACP = AVERAGE COLLECTION PERIOD ACP 365 DAYS X AVERAGE RECEIVABLES/ SALES 1725 1726 ACP = (365 X 4)/18 1727 81.1111 В 1728 1729 APP AVERAGE PAYABLES PERIOD ACP 365 DAYS X AVERAGE PAYABLES/ COST OF GOOD SOLD 1730 1731 (365 X 1)/(18*85%) 1732 APP 23.8562 1733 DAYS 128.82 (A B- C) 1734 CASH CONVERSION CYCLE = ICP +ACP APP 1735 45 days cycleROE, BV MV ratio VARIANCE BEP, OL FL dupont float B-S profit loss SALES BUDGET ove FIFO CASH BUDGET budget ratios DETROIT DIFF ANALYSIS erences: S69 120% (- II Rea FFF e WA 12:30 TENG 22-11-2019

ACCOUNTS latest - Microsoft Excel (Product Activation Failed) Review File Home Insert Page Layout Formulas Data View Add-Ins Cut Σ AutoSum - A A Wrap Text Calibri 11 General Copy Fill Merge & Center Insert Delete Format Sort & Find & Filter Select Paste +.0 .00 Conditional Format Cell BIU % Format Painter .00 0 Clear Formatting as Table Styles Number Clipboard Font Alignment Styles Cells Editing HV1754 НР HR HX HN Но HQ HS HT HU HV HW HY HZ 1735 1736 1737 ANS 2 ICP INVENTORY CONVERSION PERIOD 1738 ICP 365 DAYS X AVERAGE INVENTORY/ COST OF GOODS SOLD 1739 1740 ICP (365 X 3 X 89%)/(18 X 85%) 1741 63.6961 A 1742 1743 ACP AVERAGE COLLECTION PERIOD 1744 ACP = 365 DAYS X AVERAGE RECEIVABLES/ SALES 1745 ACP = (365 X 4 X 89%)/18 1746 72.1889 В 1747 1748 APP AVERAGE PAYABLES PERIOD ACP 365 DAYS X AVERAGE PAYABLES/ COST OF GOOD SOLD 1749 1750 (365 X 1 X 1.11)/(18*85%) 1751 APP 26.4804 1752 DAYS CASH CONVERSION CYCLE = ICP + ACP - APP 109.40 (A B- C) 1753 1754 1755 45 days cycleROE, BV MV ratio B-S profit loss dupont float ove BEP, OL FL FIFO CASH BUDGET budget VARIANCE ratios DETROIT SALES BUDGET DIFF ANALYSIS erences: S69 120% (- II Rea FFF WA 12:30 TENG 22-11-2019

ACCOUNTS latest - Microsoft Excel (Product Activation Failed) Review File Home Insert Page Layout Formulas Data View Add-Ins Σ AutoSum - Cut A A Wrap Text Calibri 11 General Copy Fill Merge & Center Insert Delete Format Sort & Find & Filter Select Paste +.0 .00 Conditional Format Cell BIU % .00 0 Format Painter Clear Formatting as Table Styles Clipboard Font Alignment Number Styles Cells Editing HV1774 HR HT HX HN но НР но HS HU HV HW HY HZ 1755 880000 1756 ANS 3 CASH FREED UP WILL BE = ANSWER IS = 5-4.01 1757 MILLION 0.88 1758 NOTE MILLION 1759 INVESTMENT IN INVENTORIES = 3 1760 ADD INVESTMENT IN RECEIVABLES = 4 1761 LESS INVESTMENT IN PAYABLES = 1 1762 NET INVESTMENT = 6 1763 1764 AFTER 8% CHANGE 1765 2.67 [3*89%] INVESTMENT IN INVENTORIES = 3.56 [4*89%] 1766 ADD INVESTMENT IN RECEIVABLES 1.11 [(1*1.11)] 1767 LESS INVESTMENT IN PAYABLES = 1768 NET INVESTMENT = 5.12 1769 1770 ANS 4 CASH FREED UP = 880000 1771 9% INTEREST RATE ON WORKING CAPITAL LOAN = 1772 SO PRE TAX PROFIT WILL INCREASE BY SAVING ON INTEREST, THAT IS 880000 x 9% 79200 1773 ANSWER= 1774 79200 1775 45 days cycle ROE, BV MV ratio dupont CASH BUDGETbudget erences: S69 VARIANCE BEP, OL FL float ove FIFO B-S profit loss ratios DETROIT SALES BUDGET DIFF ANALYSIS 120% (- II Rea FFF W 12:30 TENG 22-11-2019