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Extra Finance Question - and currently pays 9 percent for...

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1. Inventories have an average age of 110 days, and accounts receivable have an average age of 50 days. Accounts payable are paid approximately 40 days after they arise. The firm has annual sales of $36 million, its cost of goods sold represents 75% of sales, and its purchase represent 70% of cost of goods sold. Assume a 365 day year. Calculate the firms operating cycle (OC) and cash conversion cycle (CCC). Calculate the amount of total resources the company has invested in its CCC. 2. A firm has arranged for a lockbox system to reduce collection time of accounts receivable. Currently the firm has an average collection period of 43 days, an average age of inventory of 50 days, and an average payment period of 10 days. The lockbox system will reduce the average collection period by three days by reducing processing, mail, and clearing float. The firm has total annual outlays of $15,000,000
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Unformatted text preview: and currently pays 9 percent for its negotiated financing. (a) Calculate the cash conversion cycle before and after the lockbox system. (b) Calculate the savings in financing costs from the lockbox system. 3. Columbia Gas Company’s (CG) current capital structure is 35% debt and 65% equity. . This year the company has earnings after tax of $5.1 million and is paying $1.6 million in dividends. To finance a transmission pipe line, CG can borrow $2 million at a cost of 10%, the same rate that CG is currently paying on a total of $15 million long-term debt. CG has 1,000,000 shares outstanding and and its current market price is $31. If CG's long term growht rate of dividends is expected to be 8% what is the weighted cost of capital for the firm? Assume a marginal tax rate of 40%...
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