Primrose Corp has $17 million of sales, $3 million of inventories, $4 million of

Question

Primrose Corp has $17 million of sales, $3 million of inventories, $4 million of receivables, and $1 million of payables. Its cost of goods sold is 65% of sales, and it finances working capital with bank loans at an 9% rate. Assume 365 days in year for your calculations. Round intermediate steps to 2 decimal places.

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

b.)If Primrose could lower its inventories and receivables by 8% each andincreaseits payables by 8%, all without affecting sales or cost of goods sold, what would be the new CCC? Round your answer to two decimal places.
  days

c.)How much cash would be freed-up? Round your answer to the nearest cent.
$    

d.)By how much would pre-tax profits change? Round your answer to the nearest cent.
$   

THE ANSWER TO A IS 151.94

THE ANSWER TO B IS 134.51

PLEASE HELP FIND C AND D

Explanation / Answer

Sales=$17 mn

Inventories =$3mn

Receivables=$4 mn

Payables =$1mn

COGS=65%=0.65*17=$11.05mn

1.

Inventory conversion period=Avg Inventory*365/COGS =3*365/11.05=99.09502

Receivable conversion period = Avg Acc. Receivable*365/Sales =4*365/17=85.88235

Payable conversion period =Avg Acc payable*365/COGS =1*365/11.05=33.03167

Cash Flow Conversion Cycle= Inventory conversion period+ Receivable conversion period- Payable conversion period

Cash Flow Conversion Cycle=99.09502+85.88235-33.03167=151.9457

2.

Cash Flow Conversion Cycle= Inventory conversion period*(1-0.08)+ Receivable conversion period*(1-0.08)- Payable conversion period*1.08

Cash Flow Conversion Cycle=99.09502*0.92+85.88235*0.92-33.03167*1.08=134.505

3.

Increase in Cash=decrease in inventory + decrease in Acc receivable+ increase in payables

Increase in Cash=3*0.08+4*0.08+1*0.08=$0.64mn=$640000

Cash freed up=$640000

4.

Since sales and COGS are constant, Pre-tax profit will not change and will be same

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