SU_FIN3030_W5_A2 _Toussaint_E - Part One Working Capital...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Part One: Working Capital Analysis Capers, Inc. has just promoted you to Chief financial officer. Since this is a new office in the company, you are The first task you have been assigned concerns the cash conversion cycle. Your boss has asked that you exami 1. Inventory conversion period is 60 Days 2. Payables deferral period is 30 days 3. Receivables collection period of 40 days The second task concerns the cost of bank loans under differing conditions. Specifically: 1. The company needs $1,500,000 for a new project. 2. The loan will cost 10% simple interest, for 4 months, with a 20% compensating balance. Required: CC= IHP+DSO-DPO Where: CC= Cash conversion cycle IHP represents Inventory holding period DSO represents days sales outstanding DPO represents day’s payable outstanding CC= 60+40-30 =70 days Inventory turnover = 360/ Inventory conversion period =360/60 6 times Average Investment in receivables= Sales/365* Receivable conversion period =4000000/365*40 438356.2 Here Nominal Interest rate= 10%. Effective interest rate= Nominal Interest/( Principal-Compensatory balance) =150000/(1500000-20%*1500000) 0.125 1. What is the firm’s cash conversion cycle? 2. How many times per year is the firm’s inventory turnover, if sales are $4,000,000 per year?
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern