In: Finance
Here are next year's projections for a firm you are valuing:
Sales are expected to be $100 million.
Gross margin is forecasted to be 30%.
COGS and SG&A are $90 million, of which depreciation is $10
million.
The firm is very inefficient in collecting its bills from
customers. It is expected that:
Industrial customers (70% of sales) will take 100 days to pay their
bills.
Retail chains (30% of sales) make cash sales.
The firm expects to turn over its inventory every 60 days.
The firm's suppliers are, understandably, wary of extending long
credit to the firm. So the firm will be forced to pay its bills in
20 days.
Using the information provided above,
Next year’s inventory is projected to be: (Choose the closest answer). [ Select ] ["$11.50 million", "$4.93 million", "$16.44 million", "$23.61 milion", "$13.15 million"]
What should be the average collection period (days) and next year’s account receivables? Choose the closest answer
. [ Select ] ["70 and $27.40 million", "70 and $19.18 million", "100 and $27.40 million", "110 and $27.40 milion", "100 and $19.18 million"]
Projected inventory = Cost of gooda sold*days in inventory/365
= 100 million*(1-30%)*60/365
=$11.50 million
Average collection period = 100 days*70% + 0 days*30%
= 70 days
Accounts receivables = 70*sales/365
= 70*100 million/365
= $19.18 million