(Solution) 16-1 Cash Conversion Cycle Primrose Corp Has $15 Million Of Sales, $2 Million Of Inventories, $3 Million Of Receivables, And $1 Million Of Payables. | Snapessays.com


(Solution) 16-1 Cash conversion cycle Primrose Corp has $15 million of sales, $2 million of inventories, $3 million of receivables, and $1 million of payables.


16-1 Cash conversion cycle Primrose Corp has $15 million of sales, $2 million of inventories, $3 million of receivables, and $1 million of payables. Its cost of goods is 80 percent of sales, and it finances working capital with bank loans at an 8 percent rate. What is Primrose’s cash conversion cycle (CCC)? If Primrose could lower its inventories and receivables by 10 percent each and increase its payables by 10 percent, all without affecting either sales or cost of goods sold, what would the new CCC be, how much cash would be freed up and how would that affect pre-tax profits?

 

 

 

 

 

17-1 AFN equation Carter Corporation’s sales are expected to increase from $5 million in 2005 to $6 million in 2006, or by 20 percent. Its assets totaled $3 million at the end of 2005. Carter is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2005, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. The after-tax profit margin is forecasted to be 5 percent, and the forecasted retention ratio is 30 percent. Use the AFN equation to forecast Carter’s additional funds needed for the coming year.

 

 

 

 

 

 

 

 

 

 

 

 

 

17-7 Pro forma income statement At the end of last year, Roberts Inc. reported the following income statement (in millions of dollars):

 

 

Sales $3,000

 

Operating cost excluding depreciation 2,400

 

EBITDA $ 500

 

Depreciation 250

 

EBIT $ 300

 

Interest 125

 

EBT $ 175

 

Taxes (40%) 70

 

Net Income $ 105

 

 

Looking ahead to the following year, the company’s CFO has assembled the following information:

 

A) Year-end sales are expected to be 10 percent higher than the $3 billion in sales generated last year.

 

B) Year-end operating costs, excluding depreciation, are expected to equal 80 percent of year-end sales.

 

C) Depreciation is expected to increase at the same rate as sales.

 

D) Interest costs are expected to remain unchanged.

 

E) The tax rate is expected to remain at 40 percent.

 

 

On the basis of this information, what will be the forecast for Robert’s year-end income?16-1

 

Cash conversion cycle

 

Primrose Corp has $15 million of sales, $2 million of inventories,

 

$3 million of receivables, and $1 million of payables. Its cost of goods is 80 percent of sales, and

 

it finances working capital with bank loans at an 8 percent rate. What is Primrose’s cash

 

conversion cycle (CCC)? If Primrose could lower its inventories and receivables by 10 percent

 

each and increase its payables by 10 percent, all without affecting either sales or cost of goods

 

sold, what would the new CCC be, how much cash would be freed up and how would that affect

 

pre-tax profits?

 

17-1

 

AFN equation

 

Carter Corporation’s sales are expected to increase from $5 million in 2005

 

to $6 million in 2006, or by 20 percent. Its assets totaled $3 million at the end of 2005. Carter is

 

at full capacity, so its assets must grow in proportion to projected sales. At the end of 2005,

 

current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes

 

payable, and $250,000 of accrued liabilities. The after-tax profit margin is forecasted to be 5

 

percent, and the forecasted retention ratio is 30 percent. Use the AFN equation to forecast

 

Carter’s additional funds needed for the coming year.

 

17-7

 

Pro forma income statement

 

At the end of last year, Roberts Inc. reported the

 

following income statement

 

(in millions of dollars):

 

Sales

 

$3,000

 

Operating cost excluding depreciation

 

2,400

 

EBITDA

 

$ 500

 

Depreciation

 

250

 

EBIT

 

$ 300

 

Interest

 

125

 

EBT

 

$ 175

 

Taxes

 

(40%)

 

70

 

Net Income

 

$ 105

 

Looking ahead to the following year, the company’s CFO has assembled the following

 

information:

 


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