1Primrose Corp has $14 million of sales, $2.5 million of inventories, $3 million of receivables, and $1.5 million of payables. Its cost of goods sold is 75% of sales.

What is Primrose’s cash conversion cycle (CCC)?

14/3 = 4.67 = 365/4.67 = 78 days in accounts receiveable

10.5/2.5 = 4.2 = 365/4.2 = 87 days in inventories

10.5/1.5 = 7 = 365 /7 = 52 days in accounts payable

CCC = +78+87-52 = 113 days

If Primrose could lower its inventories and receivables by 10% each and increase its payables by 10%, all without affecting sales or cost of goods sold, what would be the new CCC?

14/2.7 = 5.19 = 365/5.19 = 70 days

10.5/2.25 = 4.67 = 365/4.67 = 78 days

10.5/1.65 = 6.36 = 365/6.36 = 57 days

+70+78-57 = 91 days will be the new CCC

#2Lamar Lumber Company has sales of $20 million per year, all on credit terms calling for payment within 30 days; and its accounts receivables are $4 million. What is Lamar’s DSO, what would it be if all customer paid on time, and how much capital would be released if Lamar could take action that led to on-time payments?

20/4= 5 = 365/5= 73 days

20/360 x 30 = 1.67 million would be account receivable if paid in 30 days.

Capital would be released = 4-1.67 = $2.33 million

#3Zocco Corporation has an inventory conversion period of 76 days, an average collection period of 36 days, and a payables deferral period of 29 days. a.What is the length of the cash conversion cycle?

+76+36-29 = 83 days.

b.If Zoco’s annual sales are $3,521,875 and all sales are on credit, what is the investment in accounts receivable?

3521875/360* 36 = 352188

c.How many times per year does Zocco turn over its inventory?

365/76 = 4.80 times

#1Austin Grocers recently reported the following 2009 income statement (in millions of dollars):Sales$600Operating costs including depreciation $400EBIT $200Interest $40EBT$160Taxes (40%)$64Net Income $96Dividends$32Addition to retained earnings$64 This year the company is forecasting a 50% increase in sales; and it expects that its year-end operating costs, including depreciation, will equal 75% of sales. Austin’s tax rate, interest expense, and dividend payout ratio are all expected to remain constant.

a.What is Austin’s projected 2010 net income?

900-675 225-40=185-74 = $111 million Net income for 2010

b.What is the expected growth rate in Austin’s dividends?

111 x .333 = $37 million will be the dividend

Growth in dividend = 5/32 = 15.63%

#2Walter Industries has $4 million in sales and $1.2 million in fixed assets. Currently, the company’s fixed assets are operating at 90% of capacity. a.What level of sales could Walter Industries have obtained if it had been operating at full capacity?

4/.9 = 4.444 million

b.What is Walter’s Target fixed assets/Sales ratio?

1.2/4.444 = 27%

c.If Walter’s sales increase 12%, how large of an increase in fixed assets will the company need to meet its Target fixed asset/Sales ratio?

4*1.12 = 4.48

The fixed asset should be = 4.48 x .27 = 1.2096

The increase in fixed assets should be =1.2096-1.2 = .0096 million which is .0096/1.2 = 0.8%

Detail Required: HIGH; Urgency: HIGH