Primrose Corp has $13 million of sales, $2 million of inventories, $3 million of
ID: 2344407 • Letter: P
Question
Primrose Corp has $13 million of sales, $2 million of inventories, $3 million of receivables, and $2 million of payables. Its cost of goods sold is 75% of sales, and it finances working capital with bank loans at an 8% rate. Assume 365 days in year for your calculations. Do not round intermediate steps.1.What is Primrose's cash conversion cycle (CCC)? Round your answer to two decimal places.
days
2.If Primrose could lower its inventories and receivables by 9% each and increase its payables by 9%, all without affecting sales or cost of goods sold, what would be the new CCC? Round your answer to two decimal places.
days
3.How much cash would be freed-up? Round your answer to the nearest cent.
$
By how much would pre-tax profits change? Round your answer to the nearest cent.
$
Explanation / Answer
1.What is Primrose's cash conversion cycle (CCC)? Round your answer to two decimal places.
days.
DSO (Days Sales Outstanding)
$3,000,000 / ($13,000,000/365) = 84.23 days
DSI (Days Sales in Inventory)
$2,000,000 / ($13,000,000 x 0.75 /365) = 74.87 days
DPO (Days Payables Outstanding)
$2,000,000 / ($13,000,000 x 0.75 / 365) = - 74.87 days
Cash Conversion Cycle 84.23 days
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2.If Primrose could lower its inventories and receivables by 9% each and increase its payables by 9%, all without affecting sales or cost of goods sold, what would be the new CCC? Round your answer to two decimal places.
days.
DSO (Days Sales Outstanding)
$2,730,000 / ($13,000,000/365) = 76.65 days
DSI (Days Sales in Inventory)
$1,820,000 / ($13,000,000 x 0.75 /365) = 68.13 days
DPO (Days Payables Outstanding)
$2,1800,000 / ($13,000,000 x 0.75 / 365) = - 81.61 days
Cash Conversion Cycle 63.17 days
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