Intermediate Financial Management
14th Edition
ISBN: 9780357516782
Author: Brigham, Eugene F., Daves, Phillip R.
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 21, Problem 3MC
Summary Introduction
Case summary:
Chief financing officer of Company RR, a speciality coffee manufacturer, is re-thinking about its working capital policy and wants to re-new its line of credit and it wouldn’t ready to build payroll, probably forcing the company out of business.
The scare has forced the company to examine carefully about each component of working capital to make sure it is required, and decide whether the goal is to determine the line of credit are often eliminated entirely.
Previously, it has done little to look at assets and mainly because of poor communication among business functions and the decisions about working capital cannot be made at vacuum.
To determine: Company’s cash conversion cycle.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Suppose Naboo Manufacturing's sales increase 20% over the next year. Assuming that all asset accounts change proportionately to sales, what is the external financing needed?
Stratosphere Wireless is examining its cash conversion cycle. The company expects its cost of goods sold, which equals 60 percent of sales, to be $540,000 this year. Stratosphere normally turns over inventory 20 times per year, accounts receivable is turned over 18 times per year, and the accounts payable turnover is 36. Assume there are 360 days in a year.
Calculate the cash conversion cycle. Round your answer to the nearest whole number.
days
Calculate the average balances in accounts receivable, accounts payable, and inventory. Round your answers to the nearest dollar.
Accounts receivable: $
Accounts payable: $
Inventory: $
I got the last question wrong. I have attached an example to the correct solution. Is there an easier way?
Kabab Co. is considering a $240,000 investment, which will provide net
returns of $110,000, $160,000, and $220,000 in the second, third, and
fourth years, respectively.
What is the payback period? Round up to the next month
Use the following table:
Year
Cash
Outflow
Cash
Inflow
Net Cash
Flow
Cumulative Cash
Flow
Chapter 21 Solutions
Intermediate Financial Management
Ch. 21 - a. Working capital; net working capital; net...Ch. 21 - Prob. 2QCh. 21 - Is it true that, when one firm sells to another on...Ch. 21 - What are the four elements of a firm’s credit...Ch. 21 - Prob. 5QCh. 21 - Prob. 6QCh. 21 - Prob. 7QCh. 21 - Is it true that most firms are able to obtain some...Ch. 21 - What kinds of firms use commercial paper?Ch. 21 - Prob. 1P
Ch. 21 - Medwig Corporation has a DSO of 17 days. The...Ch. 21 - What are the nominal and effective costs of trade...Ch. 21 - A large retailer obtains merchandise under the...Ch. 21 - A chain of appliance stores, APP Corporation,...Ch. 21 - Prob. 6PCh. 21 - Calculate the nominal annual cost of nonfree trade...Ch. 21 - Prob. 8PCh. 21 - Grunewald Industries sells on terms of 2/10, net...Ch. 21 - The D.J. Masson Corporation needs to raise...Ch. 21 - Negus Enterprises has an inventory conversion...Ch. 21 - Strickler Technology is considering changes in its...Ch. 21 - Dorothy Koehl recently leased space in the...Ch. 21 - Suppose a firm makes purchases of $3.65 million...Ch. 21 - The Thompson Corporation projects an increase in...Ch. 21 - The Raattama Corporation had sales of $3.5 million...Ch. 21 - Karen Johnson, CFO for Raucous Roasters (RR), a...Ch. 21 - Prob. 2MCCh. 21 - Prob. 3MCCh. 21 - Prob. 4MCCh. 21 - Prob. 5MCCh. 21 - Prob. 6MCCh. 21 - Prob. 7MCCh. 21 - Prob. 8MCCh. 21 - What is the impact of higher levels of accruals,...Ch. 21 - Prob. 10MCCh. 21 - Prob. 11MCCh. 21 - Prob. 12MCCh. 21 - Prob. 13MCCh. 21 - Prob. 14MCCh. 21 - Prob. 15MCCh. 21 - Prob. 16MC
Knowledge Booster
Similar questions
- Negus Enterprises has an inventory conversion period of 50 days, an average collection period of 35 days, and a payables deferral period of 25 days. Assume that cost of goods sold is 80% of sales. What is the length of the firm’s cash conversion cycle? If annual sales are $4,380,000 and all sales are on credit, what is the firm’s investment in accounts receivable? How many times per year does Negus Enterprises turn over its inventory?arrow_forwardStratosphere Wireless is examining its cash conversion cycle. The company expects its cost of goods sold, which equals 60 percent of sales, to be $144,000 this year. Stratosphere normally turns over inventory 24 times per year, accounts receivable is turned over 12 times per year, and the accounts payable turnover is 45. Assume there are 360 days in a year. Calculate the cash conversion cycle. Round your answer to the nearest whole number. days Calculate the average balances in accounts receivable, accounts payable, and inventory. Round your answers to the nearest dollar. Accounts receivable: $ Accounts payable: $ Inventory: $arrow_forward4. Sovereign-Tea Company projected to make even monthly cash payments of P150,000 during the year. The average return on money market placements is eight percent per annum and payment for cash transfer is expected to be P250 per transaction. Determine the total relevant cost using the Baumol Model.arrow_forward
- A company is considering purchasing equipment costing $75,000. Future annual net cash flows from this equipment are $30,000, $25,000, $15,000, $10,000, and $5,000. Cash flows occur uniformly within each year. What is this investment’s payback period?arrow_forwardBerry Manufacturing turns over its inventory 8 times each year, has an Average Payment Period of 35 days and has an Average Collection Period of 60 days. The firm’s annual sales are $3.5 million. Assume there is no difference in the investment per dollar of sales in inventory, receivable, and payables and that there is a 365-day year. A. How much resources must be invested to support its Cash Conversion Cycle? B. If the firm pays 14% for these resources, by how much would it increase its annual profits by favorably changing its Current Cash Conversion Cycle by 20 days.arrow_forwardC. Exodus Corp. is analyzing the performance of its cash management. On the average, the firm holds inventory 65 days, pays its suppliers in 35 days, and collects its receivables in 15 days. The firm has a current annual outlay of P1,960,000 on operating cycle investments. Exodus currently pays 10 percent for its negotiated financing. (Assume a 360-day year.) Calculate the following: a. Cash conversion cycle b. Operating cycle. c. Daily expenditure and the firm's annual savings if the operating cycle is reduced by 15 days.arrow_forward
- The cash flows in Table P6.41 represent the potential annual savings associated with two different types of production processes, each of which requires an investment of $40,000. Assume an interest rate of 12%. a. Determine the equivalent annual savings for each process. b. Determine the hourly savings for each process if it will be in operation of 3,000 hours per year. c. Which process should be selected?arrow_forwardBMC Co. has an average A/R balance of P1,250,000, average inventory balance of P1,750,000, and average accounts payable balance of P800,000. Its annual sales are P12,000,000 and its cost of goods sold represents 80% of annual sales. Assume there are 365 days in a year. What is BMC Co.’s cash conversion cycle?arrow_forwardA company is investigating two production options of the manufactured switches that have the estimated cash flows shown. Which one should be selected on the basis of a present worth analysis at 10% quarterly per year?arrow_forward
- A firm has an average age of inventory of 100 days, an average collection period of 40 days, and an average payment period of 30 days. The firm's cash conversion cycle is?arrow_forwardA new firm expects to generate Sales of $124,900. POINT BLANK has variable costs of $77,500, and fixed costs of $18,000. The per-year depreciation is $4,300 and the tax rate is 35 percent. What is the annual operating cash flow?arrow_forwardNoah’s ark video games expects sales to grow by 25% next year. Assume that it pays out 95% of its net income. Using the following statements and the percent of sales method, forecast cash and equivalentsarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning