Essay about Casa de Diseno

910 Words Feb 25th, 2013 4 Pages
Integrative Case 7 a.
Operating cycle (OC) = average age of inventory + average collection period = 110 days + 75 days = 185 days Cash conversion cycle = OC - average payment period (CCC) = 185 days - 30 days = 155 days Resources needed = cost of operating cycle investment x CCC 365 = $ 26,500,000 x 155 365 = $11,253,424.66 b.
Industry OC = 83 days + 75 days = 158 days
Industry CCC = 158 days - 39 days = 119 days
Industry resources needed = $26,500,000 x 119 365 = $8,639,726.03 c.
Casa de Diseno's cost of operational inefficiency :
Needed
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Reduction in bad debt expense : = $40,000,000 x (2% - 1.5%) = 200,000.00 5. Saving due to cas discount :
Reduction in revenues as a result of the discount ($540,000)
Annual saving from reduction in investment in accounts receivable $394,520.55
Annual saving from bad debt expense $200,000
Saving due to cas discount $54,521 Yes, offering the cash discount would be justified financially because it could reduce the average collection period from 75 days to 45 days and average investment could decrease $2,630,136.99 resulting in a saving from reduction in investment in account receivable of 394,520.55.
Furthermore, the reduction in bad debt expese by 0.5% could increase the saving by $2000,000. e.
Teresa Legal should compare the firm's working capital and current asset management to the industry's and offer the cash discount because it will generate the saving due to the cash discount of $54,521 per year. f. The other sources of finanacing rather than account payable that Terrsa may consider :
Unsecuured sources
1. Short-term selft-liquidating bank loans
It helps the firm through seasonal peaks in financing needs that are due to primarily buildups of inventory and accounts receivable. As the firm converts inventories and receivables to cash, the funds needed
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