Cash conversion cycle Primrose Corp has $20 million of sales, $3 million of inve

Question

Cash conversion cycle

Primrose Corp has $20 million of sales, $3 million of inventories, $3 million of receivables, and $2 million of payables. Its cost of goods sold is 65% 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

Answer: Cash Conversion Cycle = DSO + DIO ? DPO Days sales outstanding = 365/receivables turnover ratio 365 /(20/3)                         54.75 Days inventory outstanding = 365/inventory turnover ratio 365 /(20*65%/3)                         84.23 Days payables outstanding = 365/payables turnover ratio 365 /(20*65%/2)                         56.15 Cash Conversion Cycle = DSO + DIO ? DPO                         82.83 Days

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