Connect Exam Solution Homework 7-8

Are expected to increase sales to 810000 per year and

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Unformatted text preview: 0 per year, and cost of goods will remain at 70% of sales. Because of the firm’s increased purchases for its own production needs, average payables will increase to $36,000. What effect will these changes have on the firm’s cash conversion cycle? (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 2 decimal places.) The cash conversion cycle will increase by 13.65 . Explanation: Some values below may show as rounded for display purposes, though unrounded numbers should be used for the actual calculations. The additional sales of $810,000 increase costs of goods by $810,000 × 0.70, or $567,000. The inventory period will change by $11,000/($567,000/365) = 7.08. The receivables period will change by $66,000/($810,000/365) = 29.74. The accounts payable period will change by $36,000/($567,000/365) = 23.17. ∆ Cash conversion cycle = (∆ inventory period + ∆ receivables period) − ∆ accounts payable period = (7.08 + 29.74) − 23.17 = 13.65 2 of 9 12/3/2012 11:52 AM Fundamentals of Corporate Finance (McGraw Hill Connect Exam Solution) http://www.vuzs.net/extra-notes/29-fin622-corporate-finance/5530-fund... The cash conversion cycle will increase by 13.65 as the result of these policy changes to increase sales. 5. Net income $1,700 Dividends 900 Additions to inventory 140 Additions to receivables 170 Depreciation 110 Reduction in payables 570 Net issuance of long-term debt 320 Sale of fixed assets 80 Sources Issued long-term debt $ 320 Sale of fixed assets 80 Cash from operations: Net income 1,700 Total sources $ 2,210 Uses Additions to inventory $ 140 Increase in accounts receivable 170 Decrease in accounts payable 570 Payment of dividends 900 Total uses $ 1,780 6. Products places orders for goods equal to 75% of its sales forecast in the next quarter. What will be orders in each quarter of the year if the sales forecasts for the next five quarters are as follows: Quarter in Coming Year First Sales forecast Quarter $420 Third $396 Fourth $444 First Quarter $444 Order 1 $ 315 2 297 3 333 4 3 of 9 $432 Second Following Year 333 12/3/2012 11:52 AM Fundamentals of Corporate Finance (McGraw Hill Connect Exam Solution) http://www.vuzs.net/extra-notes/29-fin622-corporate-finance/5530-fund... Explanation: The order is 0.75 times the following quarter's sales forecast: Quarter Order 1 0.75 × $420 = $315 2 0.75 × $396 = $297 3 0.75 × $444 = $333 4 0.75 × $444 = $333 6. Paymore Products places orders for goods equal to 80% of its sales forecast in the next quarter. The sales forecasts for the next five quarters are as follows: Quarter in Coming Year First Sales forecast $510 Second $500 Third $470 Following Year Fourth $520 First Quarter $520 Calculate Paymore’s cash payments to its suppliers under the assumption that the firm pays for its goods with a 1-month delay. Therefore, on average, three-fourths of purchases are paid for in the quarter that they are purchased, and one-fourth are paid in the following quarter. (D...
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