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16-1 Cash conversion cycle Primrose Corp has \$15...

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16-1 Cash conversion cycle Primrose Corp has \$15 million of sales, \$2 million of inventories, \$3 million of receivables, and \$1 million of payables. Its cost of goods is 80 percent of sales, and it finances working capital with bank loans at an 8 percent rate. What is Primrose?s cash conversion cycle (CCC)? If Primrose could lower its inventories and receivables by 10 percent each and increase its payables by 10 percent, all without affecting either sales or cost of goods sold, what would the new CCC be, how much cash would be freed up and how would that affect pre-tax profits? 17-1 AFN equation Carter Corporation?s sales are expected to increase from \$5 million in 2005 to \$6 million in 2006, or by 20 percent. Its assets totaled \$3 million at the end of 2005. Carter is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2005, current liabilities are \$1 million, consisting of \$250,000 of accounts payable, \$500,000 of notes payable, and \$250,000 of accrued liabilities. The after-tax profit margin is forecasted to be 5 percent, and the forecasted retention ratio is 30 percent. Use the AFN equation to forecast Carter?s additional funds needed for the coming year. 17-7 Pro forma income statement At the end of last year, Roberts Inc. reported the following income statement (in millions of dollars): Sales \$3,000 Operating cost excluding depreciation 2,400 EBITDA \$ 500 Depreciation 250 EBIT \$ 300 Interest 125 EBT \$ 175 Taxes (40%) 70 Net Income \$ 105 Looking ahead to the following year, the company?s CFO has assembled the following information: A) Year-end sales are expected to be 10 percent higher than the \$3 billion in sales generated last year. B) Year-end operating costs, excluding depreciation, are expected to equal 80 percent of year-end sales. C) Depreciation is expected to increase at the same rate as sales. D) Interest costs are expected to remain unchanged. E) The tax rate is expected to remain at 40 percent. On the basis of this information, what will be the forecast for Robert?s year-end income?

Paper#2536 | Written in 18-Jul-2015

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