Question

Parramore Corp has $19 million of sales, $2 million of inventories, $2.75 million of receivables, and $2 million of payables. Its cost of goods sold is 85% of sales, and it finances working capital with bank loans at a 7% rate. Assume 365 days in year for your calculations.

A. What is Parramore's cash conversion cycle (CCC)? Do not round intermediate calculations. Round your answer to two decimal places.
days

B. 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

C. 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? 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.
$  

D. 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? 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.
$  

Part Two

hastain Corporation is trying to determine the effect of its inventory turnover ratio and days sales outstanding (DSO) on its cash conversion cycle. Chastain's 2019 sales (all on credit) were $235,000, its cost of goods sold is 80% of sales, and it earned a net profit of 5%, or $11,750. It turned over its inventory 5 times during the year, and its DSO was 31.5 days. The firm had fixed assets totaling $32,000. Chastain's payables deferral period is 45 days. Assume 365 days in year for your calculations.

1. Calculate Chastain's cash conversion cycle. Do not round intermediate calculations. Round your answer to two decimal places.
   days
2. 
   
3. Assuming Chastain holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. Do not round intermediate calculations. Round your answers to two decimal places.
   

   Total assets turnover:
   ROA:		%

4. 
   
5. Suppose Chastain's managers believe that the inventory turnover can be raised to 9.1 times. What would Chastain's cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 9.1 for 2019? Do not round intermediate calculations. Round your answers to two decimal places.
   

   Cash conversion cycle:		days
   Total assets turnover:
   ROA:		%

Answer 1