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Solutions to Lab Problems for Chapter 23

Solutions to Lab Problems for Chapter 23 - Solutions to...

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Unformatted text preview: Solutions to Lab Problems for Chapter 23 23. Section: 23.4 Working Capital Management Learning Objective: 23.4 Level of difficulty: Medium Solution: ACP = AR/(Annual Sales/365), so originally AR = ACP * (Annual Sales/365) = 32*(150,000/365) = \$13,150.68. New AR = 30 *(157,500/365) = \$12,945.21. So the change in NWC = 12,945.21 – 13,150.68 = –\$205.47 24. Section: 23.4 Working Capital Management Learning Objective: 23.4 Level of difficulty: Medium Solution: Before: OC=ADRI+ACP=98+90=188 CCC=OC ­ADRP=188 ­58=130 After: OC=80+90=170 CCC=170 ­45=125 The operating cycle will decrease by 18 days and the cash cycle will decrease by 5 days. 32. Section: 23.3 Analyzing Cash Inflows and Outflows Learning Objective: 23.3 Level of difficulty: Difficult Solution: a. With the data α = 0.75; b = 0.5; β = 0.5 and γ = 4.0. Plugging these values into Equation 23 ­4 we get: b. With the new policy, γ = 3 and b = 0.4, so the growth rate increases to: 35. Section: 23.3 Analyzing Cash Inflows and Outflows Learning Objective: 23.3 Level of difficulty: Difficult Solution: CCC = OC – ADRP = ADRI + ACP – ADRP CCC = 365/15 + 365/10 – 365/5 = 24.3 + 36.5 – 73 = 60.8 – 73 =  ­12.2 days A negative cash conversion cycle can be achieved, for example, when a company has an efficient inventory policy and collects from customers before it pays its suppliers. These are extremely advantageous business conditions, and usually require some sort of market power over either customers or suppliers or both in order to sustain 1 them in the long run. Notice that, in this case, MB Corporation turns its receivables over twice as fast as it turns its payables over. 2 ...
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