Cash conversion cycle Primrose Corp has $16 million of sales, $1 million of inve

Question

Cash conversion cycle

Primrose Corp has $16 million of sales, $1 million of inventories, $2 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 7% rate. Assume 365 days in year for your calculations. Round intermediate steps to 2 decimal places.

What is Primrose's cash conversion cycle (CCC)? Round your answer to two decimal places.
_____ days

If Primrose could lower its inventories and receivables by 7% each and increase its payables by 7%, all without affecting sales or cost of goods sold, what would be the new CCC? Round your answer to two decimal places.
_____ days

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

sales 16000000 inventories 1000000 receivables 2000000 payables 2000000 Cost of goods sold is 75% of sales 12000000 Working capital with bank loans at an 7% rate Inventory Conversion period =(inventory/cost of goods sold)*365 days 30.42 Average collection Period =(sales receivables/sales)*365 45.63 Payable deferred period=(Payables/cost of goods sold)*365 days 60.83 Primrose's cash conversion cycle (CCC)=30.42+45.63-60.83 15.22 If Primrose could lower its inventories and receivables by 7% each and increase its payables by 7%, all without affecting sales or cost of goods sold, what would be the new CCC? Round your answer to two decimal places. Inventory lowered by 7% 930000 Recivables Lowered by 7% 1860000 Payable increased by 7% 2140000 Inventory Conversion period =(inventory/cost of goods sold)*365 days 28.29 Average collection Period =(sales receivables/sales)*365 42.43 Payable deferred period=(Payables/cost of goods sold)*365 days 65.09 Primrose's cash conversion cycle NEW (CCC)=28.29+42.43-65.09 3.35 Cash freed up: Inventory=(Previous collection period-New Inventory Conversion period )*((Cost of goods sold )/365) 70000 Receivables=(Previous collection period-New Inventory Conversion period )*((sales)/365) 140000 Payable =(Previous collection period-New Inventory Conversion period )*((Cost of goods sold )/365) -140000 Cash freed up:+70000+140000- -140000 350000 By how much would pre-tax profits change =350000*.07 interest 24500

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