Parramore Corp has $13 million of sales, $3 million of inventories, $2 million o
ID: 2795018 • Letter: P
Question
Parramore Corp has $13 million of sales, $3 million of inventories, $2 million of receivables, and $1 million of payables. Its cost of goods sold is 75% of sales, and it finances working capital with bank loans at an 8% rate. Assume 365 days in year for your calculations. Do not round intermediate steps.
What is Parramore's cash conversion cycle (CCC)? Do not round intermediate calculations. Round your answer to two decimal places.
____ days
If Parramore could lower its inventories and receivables by 8% each and increase its payables by 8%, all without affecting sales or cost of goods sold, what would be the new CCC? Do not round intermediate calculations. Round your answer to two decimal places.
____ days
How much cash would be freed up, if Parramore could lower its inventories and receivables by 8% each and increase its payables by 8%, all without affecting sales or cost of goods sold? Do not round intermediate calculations. Round your answer to the nearest cent. Write out your answer completely. For Example, 13.2 million should be entered as 13,200,000.
____$
By how much would pretax profits change, if Parramore could lower its inventories and receivables by 8% each and increase its payables by 8%, all without affecting sales or cost of goods sold? Do not round intermediate calculations. Round your answer to the nearest cent. Write out your answer completely. For Example, 13.2 million should be entered as 13,200,000.
____$
Explanation / Answer
Days of receivables = 365/(receivables/sales)*100 = 365*13/2*100 = 23.725 days
Days of paybles = 365*0.75*13/(1*100)= 35.5875
Days inventory = 365*0.75*13/(3*100) = 11.8625
CCC = 23.725 +11.8625 - 35.5875 = 0 days
CCC =