1. EBIT and setting the price
A group of venture investors is considering putting money into Lemma Books, which
wants to produce a new reader for electronic books. The variable cost per unit is
estimated at $250, the sales price would be set at twice the VC/unit, fixed costs are
estimated at $750,000, and the investors will put up the funds if the project is likely to
have an operating income of $500,000 or more. What sales volume would be required in
order to meet this profit goal?
Cash conversion cycle
Zervos Inc. had the following data for 2008 (in millions). The new CFO believes (1)
that an improved inventory management system could lower the average inventory by
$4,000, (2) that improvements in the credit department could reduce receivables by
$2,000, and (3) that the purchasing department could negotiate better credit terms and
thereby increase accounts payable by $2,000. Furthermore, she thinks that these changes
would not affect either sales or the costs of goods sold. If these changes were made, by how
many days would the cash conversion cycle be lowered?
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