Question

Parramore Corp has $17 million of sales, $3 million of inventories, $2 million of receivables, and $1 million of payables. Its cost of goods sold is 70% 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 8% each and increase its payables by 8%, 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 8% each and increase its payables by 8%, 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 8% each and increase its payables by 8%, 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

Particulars	In millions		First Part
Income Statement			Working Capital (current Assets-Current Liabilities)	4
sales	17
cogs	11.9			Account Receivable turnover (Sales/AR)	8.5
EBITDA	5.1			Inventory Turnover (COGS/I)	3.966667
D&A	0			Account Payable turnover (Net credit purchase/AP)	14.9
Interest	0.36
EBT	4.74			Days of Receivables	42.94118
				Days of Inventory	92.01681
Balance Sheet			Days of Payable	24.49664
Current Assets	In millions
Account Receivables (AR)	2			CCC	110.4613
Inventories (I)	3			CCC	110.46
Current Liabilities	In millions
Accounts Payables (AP)	1
Net Credit Purchase= COGS+I-Opening Inventory	14.9
Opening Inventory	0
Second Question				Account Receivable turnover (Sales/AR)	9.23913
AR	1.84			Inventory Turnover (COGS/I)	4.311594
I	2.76			Account Payable turnover (Net credit purchase/AP)	13.57407
AP	1.08
				Days of Receivables	39.50588
Net credit Purchase	14.66			Days of Inventory	84.65546
				Days of Payable	26.8895
				CCC	97.27185
				CCC	97.27
Third Question
Decrease in AR	0.16
Decrease in Inventories	0.24
Increase in payables	0.08
Cash freed up (in millions)	0.48
Cash freed up (in millions)	480000
Fourth Question
So new working capital (Current assets- current liabilities)	3.52
Interest expenses	0.3168
EBITDA	5.1
D&A	0
Interest expenses	0.3168
EBT	4.7832
Change in EBT	0.0432
Change in EBT	43200