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 conversioncycle (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?
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 conversioncycle (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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
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
cycle (CCC)? If Parramore 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, how much cash would be freed up, and how would that affect pretax profits?
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