Current Asset Management Solutions 16

Current Asset Management Solutions 16 - PDP = 30 days CCC =...

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Old Exam Questions - Current Asset Management - Solutions Page 16 of 21 Pages * A. 45.38 days B. 36.32 days C. 29.74 days D. 21.49 days E. 15.65 days CCP = ICP + RCP - PDP Currently : Total Sales = ($1,000,000)*(360) = $360,000,000 ART = 6 AR = $360,000,000 / 6 = $60,000,000 RCP = 360 / 6 = $60,000,000 / $1,000,000 = 60 days IT = 12 Inventory = $360,000,000 / 12 = $30,000,000 ICP = 360 / 12 = $30,000,000 / $1,000,000 = 30 days PDP = 10 days CCC = 30 days + 60 days - 10 days = 80 days. Under New Policy : AR = ($60,000,000)*(0.70) = $42,000,000 RCP = $42,000,000 / $975,000 = 43.08 days Inventory = ($30,000,000)*(0.70) = $21,000,000 ICP = $21,000,000 / $975,000 = 21.54 days
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Unformatted text preview: PDP = 30 days CCC = 21.54 + 43.08 - 30 = 34.62 Change = 80 - 34.62 = 45.38 days 19. Assume that your firm has an average accounts receivable balance of $2,320,000, which is financed by a bank loan at a 6 percent annual interest rate. A large bank has approached you about setting up a nation-wide system of lock boxes which should help you to speed up collections and lower your average accounts receivable balances by 25 percent. Assuming a tax rate of 40 percent, determine how much you should be willing to pay (this would be considered an operating expense) for this system on an annual basis. A. $41,760.00 B. $37,580.00 * C. $34,800.00 D. $48,720.00 E. $44,640.00...
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

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