1. Filbeck Company buys on terms of 2/15, net 30 days. It does not take discount
ID: 2701512 • Letter: 1
Question
1. Filbeck Company buys on terms of 2/15, net 30 days. It does not take discounts, and it typically pays 30 days after the invoice date. Net purchases amount to $500,000 per year. On average, how much %u201Cfree%u201D trade credit does the firm receive during the year? (Assume a 365-day year.)
Clearly identify your answer: The firm receives free trade credit during the year of ______. Round your answers to 2 decimal places. $X,XXX.XX Show your work
2. Carroll & King Corporation has $500,000 of inventory and $200,000 of accounts receivable. Its average daily sales are $12,000. The company%u2019s payables deferral period (accounts payable divided by daily purchases) is 30 days. What is C&K%u2019s cash conversion cycle?
Clearly identify your answer: The cash conversion cycle is ______. Round your answers to 2 decimal places. XX.XX Days. Show your work
3.Suppose Yon Sun Corporation%u2019s free cash flow during the just-ended year (t = 0) was $120 million, and FCF is expected to grow at a constant rate of 7% in the future. If the weighted average cost of capital is 13%, what is the firm%u2019s value of operations, in millions?
Clearly identify your answer: The firm's value of operations is ______. Round your answers to 2 decimal places. $X,XXX.XX . Show your work.
Explanation / Answer
1. Free trade credit is for 15 days, so trade credit = 15/365 * 500,000 = $20,547.95
2. Cash conversion cycle = inventory conversion + receivables conversion - payables conversion
= 500,000/12,000 + 200,000/12,000 - 30 = 28.33 days
3. Value = 120*(1+7%)/(13%-7%) = $2,140.00 mn = $2,140,000,000
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