Williams & Sons last year reported sales of $17 million,cost of goods sold (COGS) of...

Williams & Sons last year reported sales of $17 million, cost of goods sold (COGS) of $12 and an inventory turnover ratio of 2. The company is now adopting a new inventory system. If the new system is able to reduce the firm's inventory level and increase the firm's inventory turnover ratio to 3 while maintaining the same level of sales and COGS, how much cash will be freed up? Do not round intermediate calculations. Round your answer to the nearest dollar.

Solutions

Expert Solution

The amount is computed as shown below:

Current inventory is computed as follows:

= COGS / Inventory turnover ratio

= $ 12 million / 2

= $ 6 million

New level of inventory is computed as follows:

= COGS / Inventory turnover ratio

= $ 12 million / 3

= $ 4 million

So, the amount of cash freed up will be as follows:

= $ 6 million - $ 4 million

= $ 2,000,000

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Williams & Sons last year reported sales of $9 million, cost of goods sold (COGS) of...

Williams & Sons last year reported sales of $9 million, cost of goods sold (COGS) of $6 million, and an inventory turnover ratio of 2. The company is now adopting a new inventory system. If the new system is able to reduce the firm's inventory level and increase the firm's inventory turnover ratio to 3 while maintaining the same level of sales and COGS, how much cash will be freed up? Do not round intermediate calculations. Enter your answer in...

Williams & Sons last year reported sales of $97 million, cost of goods sold (COGS) of...

Williams & Sons last year reported sales of $97 million, cost of goods sold (COGS) of $80 million, and an inventory turnover ratio of 5. The company is now adopting a new inventory system. If the new system is able to reduce the firm's inventory level and increase the firm's inventory turnover ratio to 8 while maintaining the same level of sales and COGS, how much cash will be freed up? Do not round intermediate calculations. Enter your answer in...

Williams & Sons last year reported sales of $74 million, cost of goods sold (COGS) of...

Williams & Sons last year reported sales of $74 million, cost of goods sold (COGS) of $60 and an inventory turnover ratio of 5. The company is now adopting a new inventory system. If the new system is able to reduce the firm's inventory level and increase the firm's inventory turnover ratio to 6 while maintaining the same level of sales and COGS, how much cash will be freed up? Do not round intermediate calculations. Round your answer to the...

Inventory Management Williams & Sons last year reported sales of $17 million, cost of goods sold...

Inventory Management Williams & Sons last year reported sales of $17 million, cost of goods sold (COGS) of $12 and an inventory turnover ratio of 2. The company is now adopting a new inventory system. If the new system is able to reduce the firm's inventory level and increase the firm's inventory turnover ratio to 4 while maintaining the same level of sales and COGS, how much cash will be freed up? Do not round intermediate calculations. Round your answer...

1. Inventory Management Williams & Sons last year reported sales of $145 million, cost of goods sold...

1. Inventory Management Williams & Sons last year reported sales of $145 million, cost of goods sold (COGS) of $120 and an inventory turnover ratio of 5. The company is now adopting a new inventory system. If the new system is able to reduce the firm's inventory level and increase the firm's inventory turnover ratio to 8 while maintaining the same level of sales and COGS, how much cash will be freed up? Do not round intermediate calculations. Round your answer...

Butterfly Tractors had $17.50 million in sales last year. Cost of goods sold was $8.70 million,...

Butterfly Tractors had $17.50 million in sales last year. Cost of goods sold was $8.70 million, depreciation expense was $2.70 million, interest payment on outstanding debt was $1.70million, and the firm’s tax rate was 30%. a. What was the firm’s net income? (Enter your answers in millions rounded to 2 decimal places.) b. What was the firm’s cash flow? (Enter your answers in millions rounded to 2 decimal places.) c. What would happen to net income and cash flow if...

Butterfly Tractors had $21.50 million in sales last year. Cost of goods sold was $9.50 million,...

Butterfly Tractors had $21.50 million in sales last year. Cost of goods sold was $9.50 million, depreciation expense was $3.50 million, interest payment on outstanding debt was $2.50 million, and the firm’s tax rate was 30%. a. What was the firm’s net income and net cash flow? (Enter your answers in millions rounded to 2 decimal places. For example, for $3.92 million, enter "3.92", not "3920000") Net income $ million Net cash flow $ million b. What would happen to net income...

Butterfly Tractors had $15.00 million in sales last year. Cost of goods sold was $8.20 million,...

Butterfly Tractors had $15.00 million in sales last year. Cost of goods sold was $8.20 million, depreciation expense was $2.20 million, interest payment on outstanding debt was $1.20 million, and the firm’s tax rate was 21%. a. What was the firm’s net income? (Enter your answers in millions rounded to 2 decimal places.) b. What was the firm’s cash flow? (Enter your answers in millions rounded to 2 decimal places.) c. What would happen to net income and cash flow...

Premium Excavators had $14 million in sales last year. Cost of goods sold was $8 million,...

Premium Excavators had $14 million in sales last year. Cost of goods sold was $8 million, depreciation expense was $2 million, interest payments on outstanding debt was $1 million, and the firm’s tax rate was 21%. What was the firm’s net income? What was the firm’s cash flow? What would happen to net income and cash flow if depreciation were increased by $1 million? Would you expect the change in depreciation o have a positive or negative impact on the...

Eagle Corporation had $10 Million in Sales last year. Cost of goods sold were $6 Million,...

Eagle Corporation had $10 Million in Sales last year. Cost of goods sold were $6 Million, depreciation expense was $1 Million, interest payment on outstanding debt was $2 Million, and the firm’s tax rate is 35%. What was Eagle Corporation’s Net Income (after tax)? What was Eagle Corporation’s Net Cash Flow? (1 point) What would happen to Net Income and Cash Flow if Depreciation increased by $1 Million? What would happen to Net Income and Cash Flow is the Depreciation...

Subjects