Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
14th Edition
ISBN: 9780133507690
Author: Lawrence J. Gitman, Chad J. Zutter
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 15, Problem 15.2P
Learning Goal 2
P15-2 Changing cash conversion cycle Camp Manufacturing turns over its inventory 5 times each year, has an average payment period of 35 days, and has an average collection period of 60 days. The firm has annual sales of $3.5 million and cost of goods sold of $2.4 million.
- a. Calculate the firm’s operating cycle and cash conversion cycle.
- b. What is the dollar value of inventory held by the firm?
- c. If the firm could reduce the average age of its inventory from 73 days to 63 days, by how much would it reduce its dollar investment in working capital?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Economics
GO GREEN Recycling Company starts its recycling
business today. It recycles paper, cardboard,
aluminum, and glass. The initial investment for this
business is $510,000. The net cash flow at the end
of the first year of business is forecast to be only
$10,000. But it is expected that the net cash flow
will increase at a rate of $40,000 per year starting
from the end of Year 2.
(а)
Draw a cash flow diagram for the first 5 years.
(b)
What is the present worth of ALL the cashflows for
the first 5 years at an interest rate of 10% per year?
Round off your final answer to the nearest integer.
(c)
If GO GREEN sells its business for $710,000 at the
end of Year 5, can we say this business has
achieved an internal rate of return greater than
20% per year? Why?
A firm is considering a new inventory system that will cost $120,000. The system is expected to generate positive cash flows over the next four years in the amounts of $35,000 in year 1, $55,000 in year 2, $65,000 in year 3, and $40,000 in year 4. The firm’s required rate of return is 9%. What is the payback period of this project?
1.95 years
2.46 years
2.99 years
3.10 years
Based on the information from Question 47. What is the net present value (NPV) of the project?
$28,830.29
$30,929.26
$36,931.43
$39,905.28
Based on the information from Question 47, what is the internal rate of return (IRR) of this project?
14.03%
17.56%
19.26%
21.78%
Based on the information from Question 47, what is the profitability index (PI) of this project?
0.87
1.11
1.31
1.83.
Question 46
An analyst has recently been hired to improve the performance of SL Energy Corporation, which has been experiencing a severe cash shortage. As one part of your analysis, the analyst wants to determine the firm’s cash conversion cycle. Using the following information and a 365-day year: Current inventory = $160,000; Annual sales = $1,095,000; Accounts receivable = $180,000; Accounts payable = $36,000; Total annual purchases = $730,000. Calculate the firm’s inventory conversion cycle.
18 days
70 days
75 days
80 days
Question 47
Based on information from Question 46, Calculate the firm’s receivables collection period.
60 days
70 days
80 days
90 days
Question 48
Based on information from Question 46, Calculate the firm’s payables deferral period.
18 days
36 days
75 days
90 days
Question 49
Based on information from Question 46~48,…
Chapter 15 Solutions
Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
Ch. 15.1 - Why is working capital management one of the most...Ch. 15.1 - Prob. 15.2RQCh. 15.1 - Prob. 15.3RQCh. 15.2 - Prob. 15.4RQCh. 15.2 - Prob. 15.5RQCh. 15.2 - What are the benefits, costs, and risks of an...Ch. 15.2 - Prob. 15.7RQCh. 15.3 - Prob. 1FOPCh. 15.3 - Prob. 15.8RQCh. 15.3 - Briefly describe the following techniques for...
Ch. 15.3 - Prob. 15.10RQCh. 15.4 - Prob. 15.11RQCh. 15.4 - Prob. 15.12RQCh. 15.4 - What are the basic tradeoffs in a tightening of...Ch. 15.4 - Prob. 15.14RQCh. 15.4 - Prob. 15.15RQCh. 15.4 - Prob. 15.16RQCh. 15.5 - Prob. 1FOECh. 15.5 - Prob. 15.17RQCh. 15.5 - What are the firms objectives with regard to...Ch. 15.5 - Prob. 15.19RQCh. 15.5 - Prob. 15.20RQCh. 15.5 - Prob. 15.21RQCh. 15 - Prob. 1ORCh. 15 - EOQ analysis Thompson Paint Company uses 60,000...Ch. 15 - Learning Goal 4 ST15- 3 Relaxing credit standards...Ch. 15 - Prob. 15.1WUECh. 15 - Learning Goal 2 E15-2 Icy Treats Inc. is a...Ch. 15 - Prob. 15.3WUECh. 15 - Forrester Fashions has annual credit sales of...Ch. 15 - Prob. 15.1PCh. 15 - Learning Goal 2 P15-2 Changing cash conversion...Ch. 15 - Prob. 15.5PCh. 15 - EOQ, reorder point, and safety stock Alexis...Ch. 15 - Prob. 15.7PCh. 15 - Prob. 15.8PCh. 15 - Prob. 15.9PCh. 15 - Relaxation of credit standards Lewis Enterprises...Ch. 15 - Initiating an early payment discount Gardner...Ch. 15 - Prob. 15.12PCh. 15 - Lengthening the credit period Parker Tool is...Ch. 15 - Prob. 15.14PCh. 15 - Prob. 15.15PCh. 15 - Prob. 15.16PCh. 15 - Prob. 15.18P
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- I. Provide an answer with solutionarrow_forwardYour consulting firm was recently hired to improve the performance of RP Inc, which is highly profitable but has been experiencing cash shortages due to its high growth rate. As one part of your analysis. you want to determine the firm's cash conversion cycle. Using the following information and a 365-day year, what is the firm's present cash conversion cycle? Average inventory Annual sales Annual cost of goods seld Average accounts receivable Average accunts payable P5.000 P00.000 PH0,000 P0,000 F5000 140.6 days 120.6 days 133.6 days 148.0 days O 126.9 daysarrow_forwardAnswer plarrow_forward
- a) Cash Flow Diagram b) manual solution Company C just went into a manufacturing contract. The contract will pay Company C $3 million starting 5 years from and amounts increasing by $100,000 each year through year 10. What is the present worth of the contract if the interest rate is 10% per year?arrow_forwardQuestion One a) A retailer is considering opening a new store as a business venture. The purchase price of the store will be £2 million and there will be a further investment required of £0.5 million 6 months after purchase. The store will open 12 months after purchase. Revenues less running costs are expected to occur continuously and will be £0.2 million in the first year of operation, £0.25 million in the second year of operation and thereafter increasing at yearly intervals by 4% per annum compound. Eight years after purchase, a major refit costing £0.8 million will be required. Fifteen years after purchase, it is assumed that the store will be closed and sold for £6.4million. The retailer requires a rate of return on its investment of 10% per annum effective. i) Calculate the net present value of the venture. It is now assumed that the revenue less running costs will be received mid-way through each year, rather than continuously. ii) Explain how your…arrow_forwardQuestion 3 Expected sales for the upcoming five months (May - September, 2023) in "GGG" company is as follows. Months May Amount RO June ? July ? August ? ? *Assume any five values from RO 100,000 to RO 200,000 and the used values must not be used by other groups. Sales policy is to receive 33% per cent of the sales in cash at the same month of sale, and the remaining 66% per cent in the next month. The purchases cost is expected to be 66% per cent of each month sales and is paid completely a month after the purchases. September ? Other cash incomes Rent to be received RO 2500 in June and RO 6000 in August 2024. Loan is expected to be borrowed in June RO 12,500. Interest is to be received RO 5,800 on June and RO 3,750 in August 2023. Other expenses: Wages 33.33 % of each month sale is paid in the same month. Rent RO 17,000 paid on April and RO 12,000 on July. Taxes RO 11,500 to be paid in two equal parts in June and September. Other Miscellaneous RO 5,000 is paid monthly Opening…arrow_forward
- Question 6 Jocelyn Chen & Bosco Lau Toys has developed a new children's toy. The project will last for 4 years. The total sales for the first year are $20,000 and the annual real growth rate of total sales is 20%. Operating costs are expected to be 40% of the sales revenues. Sales and operating costs numbers are presented in the following table: Year 0 Items Total sales Operating costs 0 0 1 20000 8000 2 3 4 24000 28800 34560 9600 17280 20736 The product requires an immediate investment of $60,000 in plant and equipment today. The expected nominal salvage value of the plant and equipment at the end of 4 years is $0. Plant and equipment is depreciated at 20% per year. The standard half-year depreciation rule applies. The corporate tax rate is 40% and annual discount rate for all cash flows is 12%. a. Compute the Initial UCC, annual CCA and End of Year UCC. Put your numbers in the following table: Year Initial UCC CCA Ending UCC 1 30000 2 54000 30000*20% = 6000 54000*20% 24000 = 43200…arrow_forwardSimpson Corporation expects to sell the following number of units of their newest product: Year Unit Sales 1 8,000 2 9,000 3 12,000 4 15,000 The revenue per unit is $180. NWC starts out at $50,000, then rises to 15% of sales. What is the change in cash flow for the NWC balance at the end of year 2?arrow_forwardP15–1 CASH CONVERSION CYCLE American Products is concerned about managing cash efficiently. On average, inventories have an age of 80 days, and accounts receivable are collected in 40 days. Accounts payable are paid approximately 30 days after they arise. The firm has annual sales of about $30 million. Goods sold total $20 million, and purchases are $15 million. Calculate the firm’s operating cycle. Calculate the firm’s cash conversion cycle. Calculate the amount of resources needed to support the firm’s cash conversion cycle. Discuss how management might be able to reduce the cash conversion cycle.arrow_forward
- Your consulting firm was recently hired to improve the performance of Realyou Inc, which is highly profitable but has been experiencing cash shortages due to its high growth rate. As one part of your analysis, you want to determine the firm’s cash conversion cycle. Using the following information and a 365-day year, what is the firm’s present cash conversion cycle? Average inventory P75,000 Annual sales 500,000 Annual cost of goods sold 360,000 Average accounts receivable 160,000 Average accounts payable 25,000arrow_forwardTime Value of Money I Search thi Back to Assignment Attempts Average / 2 7. Problem 5.07 (Present and Future Values of a Cash Flow Stream) еВook Problem Walk-Through An investment will pay $50 at the end of each of the next 3 vears, $250 at the end of Year 4, $400 at the end of Year 5, and $600 at the end of Year 6. If other investments of equal risk earn 9% annually, what is its present value? Its future value? Do not round intermediate calculations. Round your answers to the nearest cent. Present value: $ Future value: $ Grade it Now Save & Continue Continue without saving DI DD F11 F10 888 F9 FB 80 F7 F6 F5 F4 esc F3 F2 F1 & $ %arrow_forwardHi expart Provide solutionarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage LearningPrinciples of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Survey of Accounting (Accounting I)
Accounting
ISBN:9781305961883
Author:Carl Warren
Publisher:Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College
Topic 6 - Financial statement analysis; Author: drdavebond;https://www.youtube.com/watch?v=uUnP5qkbQ20;License: Standard Youtube License