Question

Parramore Corp has $15 million of sales, $2 million of inventories, $4 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 an 8% rate. Assume 365 days in year for your calculations.

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

If Parramore could lower its inventories and receivables by 10% each and increase its payables by 10%, 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

How much cash would be freed up, if Parramore could lower its inventories and receivables by 10% each and increase its payables by 10%, 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. ___ $

By how much would pretax profits change, if Parramore could lower its inventories and receivables by 10% each and increase its payables by 10%, 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. ___ $

Answer 1

Answer :- 1
Inventory	2000000
Accounts receivable	4000000
Accounts payable	2000000
Net Sales	15000000
Cost of goods sold ( @ 85% of net sale)	12750000
*Inventory, receivable & payable has been taken as Average
Inventory Convesrion period	Average inventory * 365 / Cost of goods sold		57.2549	days
Average collection period	Average receivable * 365 / Credit Sales		97.33333	days
Average payment period	Average payable * 365 / Cost of goods sold		57.2549	days
Operating cycle = Inventory Conversion period + Average collection period
= 57.25 + 97.33 days
= 154.5 days
Cash Conversion Cycle (CCC) = Operating Cycle - Average payament period
= 154.58 - 57.25
= 97.33	days

Answer :- 2
Inventory	1800000	Decreased by 10%
Accounts receivable	3600000	Decreased by 10%
Accounts payable	2200000	Increased by 10%
Net Sales	15000000
Cost of goods sold ( @ 85% of net sale)	12750000
*Inventory, receivable & payable has been taken as Average
Inventory Convesrion period	Average inventory * 365 / Cost of goods sold		51.52941	days
Average collection period	Average receivable * 365 / Credit Sales		87.6	days
Average payment period	Average payable * 365 / Cost of goods sold		62.98039	days
Operating cycle = Inventory Conversion period + Average collection period
= 51.53 + 87.60
= 139.13 days
Cash Conversion Cycle (CCC) = Operating Cycle - Average payament period
= 139.13 - 62.98
= 76.15	days

Answer :- 3
Inventory	1800000	Decreased by 10%
Accounts receivable	3600000	Decreased by 10%
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