Problem 15-1 Cash conversion cycle Primrose Corp has $18 million of sales, $1 mi
ID: 2636552 • Letter: P
Question
Problem 15-1
Cash conversion cycle
Primrose Corp has $18 million of sales, $1 million of inventories, $4 million of receivables, and $2 million of payables. Its cost of goods sold is 65% of sales, and it finances working capital with bank loans at an 8% rate. Assume 365 days in year for your calculations. Do not round intermediate steps.
What is Primrose's cash conversion cycle (CCC)? Round your answer to two decimal places.
days
If Primrose could lower its inventories and receivables by 7% each and increase its payables by 7%, all without affecting sales or cost of goods sold, what would be the new CCC? Round your answer to two decimal places.
days
How much cash would be freed-up? Round your answer to the nearest cent.
$
By how much would pre-tax profits change? Round your answer to the nearest cent.
$
Explanation / Answer
Primrose Corp has $18 million of sales, $1 million of inventories, $4 million of receivables, and $2 million of payables. Its cost of goods sold is 65% of sales, and it finances working capital with bank loans at an 8% rate. Assume 365 days in year for your calculations. Do not round intermediate steps.
What is Primrose's cash conversion cycle (CCC)? Round your answer to two decimal places.
days
Sales = $18,000,000; Inventory = $1,000,000; A/R = $4,000,000; A/P = $2,000,000; COGS = 0.65(Sales); Interest on bank loan = 8%
CCC = Inventory conversion period + Average collection period