Its cost of goods sold is 75% of sales, and it finances working capital with ban
ID: 2673230 • Letter: I
Question
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.Stone Rock has:
$13 million of sales
$2 million of inventories
$3 million of receivables
$2 million of payables
If Stone Rock could lower its inventories and receivables by 9% each and increase its payables by 9%, all without affecting sales or cost of goods sold.
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
Seattle Coffee has
$4 billion in sales
$1.6 billion in fixed assets
The company's fixed assets are operating at 90% of capacity.
1. What level of sales could Seattle Coffee have obtained if it had been operating at full capacity? Round your answer to the nearest cent.
X (90%)=$4 billion
X (.90)=$4 billion
X =$4 billion /0.90=4.444444 billion
2. What is Seattle Coffee’s target fixed assets/Sales ratio? Round your answer to two decimal places.
=$1.6 billion/$4 billion=0.4
3. If Seattle Coffee's sales increase 12%, how large of an increase in fixed assets will the company need to meet its Target fixed assets/Sales ratio? Round your answer to the nearest cent.
12%,= $4 billion (1.12)=4.48 billion
x/4.48 billion =4.444444 billion
x=4.444444 billion x4.48 billion=19.9109
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