Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Antonio is an analyst at Barrilla Group. The firm turns over its inventory 5 times each year. It has an average collection period of 50 days and an average payment period of 20 days. The firm’s annual sales are €12 million. Assume there is no difference in the investment per euro of sales in inventory, receivables, and payables, and assume a 365-day year.
a.Calculate the firm’s cash conversion cycle, its daily cash operating expenditure, and the amount of resources needed to support its cash conversion cycle.
b.Find the firm’s cash conversion cycle and resource investment requirement if it makes the following changes simultaneously.
(1)Shortens the average age of inventory by 10 days.
(2)Speeds the collection of accounts receivable by an average of 15 days.
(3)Extends the average payment period by 5 days.
c.If the firm pays 15% for its resource investment, by how much, if anything, could it increase its annual profit as a result of changes in part b?
d.If the annual cost of achieving the profit in part c is €50,000, what action should Antonio recommend to Barrilla? Why?
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