11 20 | 8,4KB/d HD586ProblemsEasyProblems1-316-150ם!!!4G51CASH CONVERSION CYCLE Parramore Corp has $12 million of sales, $3 million of inventories,$3.25 million of receivables, and $1.25 million of payables. Its cost of goods sold is 75% of sales,and it finances working capital with bank loans at an 8% rate. What is Parramore's cash con-version cycle (CCC)? If Parramore could lower its inventories and receivables by 10% each andincrease its payables by 10%, all without affecting sales or cost of goods sold, what would bethe new CCC, how much cash would be freed up, and how would that affect pretax profits?Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.Part 6 Working Capital Management and Financial Forecasting16-216-3IntermediateProblems16-44-6ChallengingProblems7-1016-516-616-7RECEIVABLES INVESTMENT Leyton Lumber Company has sales of $12 million per year, all oncredit terms calling for payment within 30 days, and its accounts receivable are $1.5 million.What is Leyton's DSO, what would it be if all customers paid on time, and how much capitalwould be released if Leyton could take action that led to on-time payments?COST OF TRADE CREDIT AND BANK LOAN Lancaster Lumber buys $8 million of materials(net of discounts) on terms of 3/5, net 55, and it currently pays on the 5th day and takesdiscounts. Lancaster plans to expand, which will require additional financing. If Lancasterdecides to forgo discounts, how much additional credit could it obtain, and what wouldbe the nominal and effective cost of that credit? If the company could get the funds froma bank at a rate of 9%, interest paid monthly, based on a 365-day year, what would be theeffective cost of the bank loan? Should Lancaster use bank debt or additional trade credit?Explain.CASH CONVERSION CYCLE Zane Corporation has an inventory conversion period of 64 days,an average collection period of 28 days, and a payables deferral period of 41 days.a. What is the length of the cash conversion cycle?b. If Zane's annual sales are $2,578,235 and all sales are on credit, what is the investmentin accounts receivable?c. How many times per year does Zane turn over its inventory? Assume that the cost ofgoods sold is 75% of sales. Use sales in the numerator to calculate the turnover ratio.RECEIVABLES INVESTMENT McEwan Industries sells on terms of 3/10, net 30. Total salesfor the year are $1,921,000; 40% of the customers pay on the 10th day and take discounts,while the other 60% pay, on average, 70 days after their purchases.a. What is the days sales outstanding?b. What is the average amount of receivables?c. What is the percentage cost of trade credit to customers who take the discount?d. What is the percentage cost of trade credit to customers who do not take the discountand pay in 70 days?e. What would happen to McEwan's accounts receivable if it toughened up on its collec-tion policy with the result that all nondiscount customers paid on the 30th day?WORKING CAPITAL INVESTMENT Pasha Corporation produces motorcycle batteries. Pashaturns out 1,400 batteries a day at a cost of $7 per battery for materials and labor. It takes the firm22 days to convert raw materials into a battery. Pasha allows its customers 40 days in which topay for the batteries, and the firm generally pays its suppliers in 30 days.a. What is the length of Pasha's cash conversion cycle?b. At a steady state in which Pasha produces 1,400 batteries a day, what amount of work-ing capital must it finance?c. By what amount could Pasha reduce its working capital financing needs if it was ableto stretch its payables deferral period to 33 days?d. Pasha's management is trying to analyze the effect of a proposed new productionprocess on its working capital investment. The new production process would allowPasha to decrease its inventory conversion period to 17 days and to increase its dailyproduction to 2,400 batteries. However, the new process would cause the cost of mate-rials and labor to increase to $12. Assuming the change does not affect the averagecollection period (40 days) or the payables deferral period (30 days), what will be thelength of its cash conversion cycle and its working capital financing requirement if thenew production process is implemented?CASH CONVERSION CYCLE Chastain Corporation is trying to determine the effect of itsinventory turnover ratio and days sales outstanding (DSO) on its cash conversion cycle.Chastain's 2018 sales (all on credit) were $121,000, its cost of goods sold is 80% of sales, andit earned a net profit of 2%, or $2,420. It turned over its inventory 7 times during the year,and its DSO was 37 days. The firm had fixed assets totaling $42,000. Chastain's payablesdeferral period is 35 days.a. Calculate Chastain's cash conversion cycle.b. Assuming Chastain holds negligible amounts of cash and marketable securities, calcu-late its total assets turnover and ROA.ACopyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.Chapter 16 Working Capital Management587EditAnotasiIsi & TandaTanganKonversiSemua

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The objective of the question is to calculate the cash conversion cycle (CCC) for Parramore Corp,…