Strickler Technology is considering changes in its working capital policies toimprove its cash flow cycle. Strickler's sales last year were $3,250,000 (all on credit),and its net profit margin was 7%. Its inventory turnover was 6.0 times during theyear, and its DSO was 41 days. Its annual cost of goods sold was $1,800,000.The firm had fixed assets totaling $535,000. Strickler's payables deferral period is45 days.(16-12)Working CapitalCash Flow Cyclea. Calculate Strickler's cash conversion cycle.b. Assuming Strickler holds negligible amounts of cash and marketable securities,calculate its total assets turnover and ROA.C. Suppose Strickler's managers believe the annual inventory turnover can be raisedto 9 times without affecting sale or profit margins. What would Strickler's cashconversion cycle, total assets turnover, and ROA have been if the inventory turnovehad been 9 for the year?

given data sales = 3,250,000 net profit margin = 7% sales outsanding = 41 days inventory turn over…

Strickler Technology is considering changes in its working capital policies to improve its cash flow cycle. Strickler's sales last year were $3,250,000 (all on credit), and its net profit margin was 7%. Its inventory turnover was 6.0 times during the year, and its DSO was 41 days. Its annual cost of goods sold was $1,800,000. The firm had fixed assets totaling $535,000. Strickler's payables deferral period is 45 days. a. Calculate Strickler's cash conversion cycle. b. Assuming Strickler holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. C. Suppose Strickler's managers believe the annual inventory turnover can be raised to 9 times without affecting sale or profit margins. What would Strickler's cash

Strickler Technology is considering changes in its working capital policies to improve its cash flow cycle. Strickler's sales last year were $3,250,000 (all on credit), and its net profit margin was 7%. Its inventory turnover was 6.0 times during the year, and its DSO was 41 days. Its annual cost of goods sold was $1,800,000. The firm had fixed assets totaling $535,000. Strickler's payables deferral period is 45 days. a. Calculate Strickler's cash conversion cycle. b. Assuming Strickler holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. C. Suppose Strickler's managers believe the annual inventory turnover can be raised to 9 times without affecting sale or profit margins. What would Strickler's cash

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Edwards Industries has $320 million in sales. The companyexpects that its sales will increase 12% this year. Edwards’ CFO uses a simple linearregression to forecast the company’s receivables level for a given level of projected sales.On the basis of recent history, the estimated relationship between receivables and sales (inmillions of dollars) is as follows:Receivables = $9.25 + 0.07(Sales)Given the estimated sales forecast and the estimated relationship between receivables andsales, what are your forecasts of the company’s year-end balance for receivables and itsyear-end days sales outstanding (DSO) ratio? Assume that DSO is calculated on the basisof a 365-day year.
You have been studying Lucas Corp.’s financial statements. This year, the company has an EBIT of $3.15mil, Depreciation of $295,000, an increase in net working capital of $125,000, and a capital spending of $535,000. You expect that over the next 5 years, EBIT will grow at 15% per year, depreciation and capital spending will grow at 20% per year, and NWC will grow at 10% per year. After year 5, you expect the company’s free cash flow will grow at 3.5% indefinitely. The company has a 21% corporate tax rate and a WACC of 8.9%. a) Compute the free cash flows for the next 5 years. b) Compute the terminal value at the end of year 5. c) What is the company’s enterprise value?
Berry 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.
Cincinnati Deco recently reported $204,500 of sales, $140,500 of operating costs other than depreciation, and $9,250 of depreciation. The company had $35,250 of outstanding bonds that carry a 6.75% interest rate, and its federal-plus-state income tax rate was 21%. In order to sustain its operations and thus generate future sales and cash flows, the firm was required to spend $15,250 to buy new fixed assets and to invest $6,850 in net operating working capital. What was the firm's free cash flow?$26,663$23,700$30,403$19.256No correct answer
Cold Goose Metal Works Inc.’s income statement reports data for its first year of operation. The firm’s CEO would like sales to increase by 25% next year. 1. Cold Goose is able to achieve this level of increased sales, but its interest costs increase from 10% to 15% of earnings before interest and taxes (EBIT). 2. The company’s operating costs (excluding depreciation and amortization) remain at 70% of net sales, and its depreciation and amortization expenses remain constant from year to year. 3. The company’s tax rate remains constant at 25% of its pre-tax income or earnings before taxes (EBT). 4. In Year 2, Cold Goose expects to pay $200,000 and $1,922,063 of preferred and common stock dividends, respectively. Complete the Year 2 income statement data for Cold Goose, then answer the questions that follow. Be sure to round each dollar value to the nearest whole dollar. Cold Goose Metal Works Inc. Income Statement for Year Ending December 31…
The following tables contain financial statements for Dynastatics Corporation. Although the company has not been growing, it now plans to expand and will increase net fixed assets (i.e., assets net of depreciation) by $350,000 per year for the next 4 years, and it forecasts that the ratio of revenues to total assets will remain at 1.50. Annual depreciation is 20% of net fixed assets at the beginning of the year. Fixed costs are expected to remain at $86 and variable costs at 70% of revenue. The company’s policy is to pay out one-half of net income as dividends and to maintain a book debt ratio of 20% of total capital. INCOME STATEMENT, 2019(Figures in $ thousands) Revenue $ 2,160 Fixed costs 86 Variable costs (70% of revenue) 1,512 Depreciation 280 Interest (6% of beginning-of-year debt) 18 Taxable income 264 Taxes (at 35%) 92 Net income $ 172 Dividends $ 86 Addition to retained…
DataDyne Company reported EBIT of $590 million for the most recent fiscal year. Interest expense were $10 million and the current tax rate was 20%. The firm had depreciation expenses of $100 million and capital expenditures of $150 million. In addition, the firm did have a decrease in net working capital of $30 million. What is DataDyne's free cash flow?
Berry 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. Calculate the Firm’s Operating Cycle. B. Calculate the Firm’s Cash Conversion Cycle. C. Calculate the Firm’s Daily Cash Operating Expenditure.
Gibson Company sales for the Year 1 were $2 million. The firm’s variable operating cost ratio was 0.45, and fixed costs (that is, overhead and depreciation) were $700,000. Its average (and marginal) income tax rate is 40 percent. Currently, the firm has $2.4 million of long-term bank loans outstanding at an average interest rate of 13.0 percent. The remainder of the firm’s capital structure consists of common stock (140,000 shares outstanding at the present time). Calculate Gibson’s degree of combined leverage for Year 1. Round your answer to two decimal places. Gibson is forecasting a 8 percent increase in sales for next year (Year 2). Furthermore, the firm is planning to purchase additional labor-saving equipment, which will increase fixed costs by $130,000 and reduce the variable cost ratio to 0.430. Financing this equipment with debt will require additional bank loans of $400,000 at an interest rate of 13.0 percent. Calculate Gibson’s expected degree of combined leverage for…
Payne Products had $2.4 million in sales revenues in the most recent year and expects sales growth to be 25% this year. Payne would like to determine the effect of various current assets policies on its financial performance. Payne has $2 million of fixed assets and intends to keep its debt ratio at its historical level of 60%. Payne's debt interest rate is currently 10%. You are to evaluate three different current asset policies: (1) a restricted policy in which current assets are 45% of projected sales, (2) a moderate policy with 50% of sales tied up in current assets, and (3) a relaxed policy requiring current assets of 60% of sales. Earnings before interest and taxes are expected to be 14% of sales. Payne's tax rate is 35%, a. What is the expected return on equity under each current asset level? Round your answers to two decimal places. Tight policy % 76.77 Moderate policy Relaxed policy 9.04 5.05 1% b. In this problem, we have assumed that the level of expected sales is…
Moonsun had $338 million of sales last year, and it had $200 million of fixed assets that were being operated at 71% of capacity.If Moonsun had operated at full capacity, how large could sales have been (in millions)?
Merton Analytics is considering changes in its working capital policies to improve its cash ﬂow cycle. Merton’s sales last year were $4,250,000 (all on credit), and its net proﬁt margin was 7%. Its inventory turnover was 7.5 times during the year, and its DSO was 41 days. Its annual cost of goods sold was $2,200,000. The ﬁrm had ﬁxed assets totaling $585,000. Merton’s payables deferral period is 42 days. Calculate Merton’s cash conversion cycle. Assuming Merton holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. Suppose Merton’s managers believe the annual inventory turnover can be raised to 9.5 times without affecting sales. What would Merton’s cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 9.5 for the year?

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