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CASH CONVERSION CYCLE Parramore Corp has $12 million of sales, $3 million of inventories, $3.25 million of receivables, and $1.25million of payables. Its cost of goods sold is 75% of sales, and it finances working capital with bank loans at an 8%rate. What is Parramore’s cash conversion cycle (CCC)? If Parramore could lower its inventories and receivables by 10% each and increase its payables by 10%, all without affecting sales or cost of goods sold, what would be the new CCC, how much cash would be freed up, and how would that affect pretax profits?

BuyFind

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781337395250
BuyFind

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781337395250

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Chapter
Section
Chapter 16, Problem 1P
Textbook Problem

CASH CONVERSION CYCLE Parramore Corp has $12 million of sales, $3 million of inventories, $3.25 million of receivables, and $1.25million of payables. Its cost of goods sold is 75% of sales, and it finances working capital with bank loans at an 8%rate. What is Parramore’s cash conversion cycle (CCC)? If Parramore could lower its inventories and receivables by 10% each and increase its payables by 10%, all without affecting sales or cost of goods sold, what would be the new CCC, how much cash would be freed up, and how would that affect pretax profits?

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