Samual Corp has $13 million of sales, $2 million of inventories, $3 million of r

Question

Samual Corp has $13 million of sales, $2 million of inventories, $3 million of receivables, and $2 million of payables. Its cost of goods sold is 75% 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.

What is Samual cash conversion cycle (CCC) 84.23 Days

1. If Samual 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? Round your answer to two decimal places.

___________Days


2. How much cash would be freed-up? Round your answer to the nearest cent.

$____________

By how much would pre-tax profits change? Round your answer to the nearest
cent.

$____________

Explanation / Answer

1. CCC= INVENRTORY CONVERSION PERIOD +AVERAGE COLLECTION PERIOD – PPAYABLE DEFERRAL PERIOD

INVENRTORY CONVERSION PERIOD=INVENTORY /COST OF GOODS PER DAY

=2,000,000 /[(0.8 ) 13,000,000}] /365=70.19 DAYS

2. AVERAGE COLLECTION PERIOD =RECEIVABLE /(SALE/365)

=$3 million /(13/365)=84.23DAYS

3. PAYABALE DEFEREED PERIOD = PAYABLES / [COST OF GOODS SOLD /365]

= $2 million//[(0.8 ) 13,000,000}] /365=70.19

CCC=70.19 DAYS+84.23DAYS+70.19=224.61 DAYS ANSWER

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