INTERMEDIATE FINAN.MGMT.(LL)-W/MINDTAP
14th Edition
ISBN: 9780357533611
Author: Brigham
Publisher: CENGAGE L
expand_more
expand_more
format_list_bulleted
Question
Chapter 21, Problem 1P
Summary Introduction
To determine: Amount of cash will be freed up.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
SJU Resources last year reported cost of goods sold of $35 million and an inventory turnover ratio of 2. The company is now adopting a new inventory system. If the new system is able to reduce the firm’s inventory level and increase the firm’s inventory turnover ratio to 3 while maintaining the same level of sales, how much cash will be freed up?
Williams & Sons last year reported sales of $127 million, cost of goods sold (COGS) of $105 and an inventory turnover ratio of 5. The company is now adopting a new inventory system. If the new system is able to reduce the firm's inventory level and increase the firm's inventory turnover ratio to 7 while maintaining the same level of sales and COGS, how much cash will be freed up? Do not round intermediate calculations. Round your answer to the nearest dollar.
Williams & Sons last year reported sales of $73 million, cost of goods sold (COGS) of $60 million, and an inventory turnover ratio of 5. The company is now adopting a new inventory system. If the new system is able to reduce the firm's inventory level and increase the firm's inventory turnover ratio to 6 while maintaining the same level of sales and COGS, how much cash will be freed up? Do not round intermediate calculations. Enter your answer in dollars. For example, an answer of $1.23 million should be entered as 1,230,000,000. Round your answer to the nearest dollar.
Chapter 21 Solutions
INTERMEDIATE FINAN.MGMT.(LL)-W/MINDTAP
Ch. 21 - a. Working capital; net working capital; net...Ch. 21 - Prob. 2QCh. 21 - Is it true that, when one firm sells to another on...Ch. 21 - What are the four elements of a firm’s credit...Ch. 21 - Prob. 5QCh. 21 - Prob. 6QCh. 21 - Prob. 7QCh. 21 - Is it true that most firms are able to obtain some...Ch. 21 - What kinds of firms use commercial paper?Ch. 21 - Prob. 1P
Ch. 21 - Medwig Corporation has a DSO of 17 days. The...Ch. 21 - What are the nominal and effective costs of trade...Ch. 21 - A large retailer obtains merchandise under the...Ch. 21 - A chain of appliance stores, APP Corporation,...Ch. 21 - Prob. 6PCh. 21 - Calculate the nominal annual cost of nonfree trade...Ch. 21 - Prob. 8PCh. 21 - Grunewald Industries sells on terms of 2/10, net...Ch. 21 - The D.J. Masson Corporation needs to raise...Ch. 21 - Negus Enterprises has an inventory conversion...Ch. 21 - Strickler Technology is considering changes in its...Ch. 21 - Dorothy Koehl recently leased space in the...Ch. 21 - Suppose a firm makes purchases of $3.65 million...Ch. 21 - The Thompson Corporation projects an increase in...Ch. 21 - The Raattama Corporation had sales of $3.5 million...Ch. 21 - Karen Johnson, CFO for Raucous Roasters (RR), a...Ch. 21 - Prob. 2MCCh. 21 - Prob. 3MCCh. 21 - Prob. 4MCCh. 21 - Prob. 5MCCh. 21 - Prob. 6MCCh. 21 - Prob. 7MCCh. 21 - Prob. 8MCCh. 21 - What is the impact of higher levels of accruals,...Ch. 21 - Prob. 10MCCh. 21 - Prob. 11MCCh. 21 - Prob. 12MCCh. 21 - Prob. 13MCCh. 21 - Prob. 14MCCh. 21 - Prob. 15MCCh. 21 - Prob. 16MC
Knowledge Booster
Similar questions
- Inventory Management Williams & Sons last year reported sales of $26 million, cost of goods sold (COGS) of $20 million, and an inventory turnover ratio of 4. The company is now adopting a new inventory system. If the new system is able to reduce the firm's inventory level and increase the firm's inventory turnover ratio to 5 while maintaining the same level of sales and COGS, how much cash will be freed up? Do not round intermediate calculations. Enter your answer in dollars. For example, an answer of $1.23 million should be entered as 1,230,000,000. Round your answer to the nearest dollar. $arrow_forwardInventory ManagementWilliams & Sons last year reported sales of $12 million, cost of goods sold(COGS) of $10 million, and an inventory turnover ratio of 2. The companyis now adopting a new inventory system. If the new system is able to reducethe firm’s inventory level and increase the firm’s inventory turnover ratioto 5 while maintaining the same level of sales and COGS, how much cashwill be freed up?arrow_forwarda) Kareem & Sons last year reported sales of 12 million and an inventory turnover ratio of 4. The company is now adopting a new inventory system. If the new system is able to reduce the firm’s inventory level and increase the firm’s inventory turnover ratio to 8 while maintaining the same level of sales, how much cash will be freed up? b) Medwing Corporation has a DSO of 19 days. The company averages 5,500 in credit sales each day. What is the company’s average accounts receivable? c) McDowell Industries sells on terms of 4/10, net 40. Total sales for the year are $825,500. Thirty percent of customers pay on the 15th day and take discounts; the other 70% pay, on average, 60 days after their purchases.a. What is the days sales outstanding?b. What is the average amount of receivables?c. What would happen to average receivables if McDowell toughened its collection policy with the result that all non-discount customers paid on the 40th day? Solve only B and C sub parts.arrow_forward
- a) Kareem & Sons last year reported sales of 12 million and an inventory turnover ratio of 4. The company is now adopting a new inventory system. If the new system is able to reduce the firm’s inventory level and increase the firm’s inventory turnover ratio to 8 while maintaining the same level of sales, how much cash will be freed up?b) Medwing Corporation has a DSO of 19 days. The company averages 5,500 in credit sales each day. What is the company’s average accounts receivable?c) McDowell Industries sells on terms of 4/10, net 40. Total sales for the year are $825,500. Thirty percent of customers pay on the 15th day and take discounts; the other 70% pay, on average, 60 days after their purchases.a. What is the days sales outstanding?b. What is the average amount of receivables?c. What would happen to average receivables if McDowell toughened its collection policy with the result that all non-discount customers paid on the 40th day?d) International Industries sells on terms of…arrow_forwardGrant Communications is forecasting its financial statements for the upcoming year. Highlights include: Current assets of $6 million Current ratio of 2.0 Sales of $20 million Inventory turnover ratio (Sales/Inventory) of 6 The company's CFO is concerned about the forecasted inventory turnover ratio. Her goal is cut inventory enough to obtain an inventory turnover ratio of X, which is the industry average, while still maintaining sales at $20 million. If the company can accomplish this goal, the cash generated from the cut in inventories will be used to cut accounts payable. This will give the firm a Quick Ratio [(Current Assets - Inventory) / Current Liabilities] of 1.50. What is X, the desired inventory turnover ratio? Enter your answer, truncated to 2 decimal places. For example, enter 7.777 as 7.77.arrow_forwardA firm is considering several policy changes to increase sales. It will increase the variety of goods it keeps in inventory, but this will increase inventory by $11,500. It will offer more liberal sales terms, but this will result in average receivables increasing by $68,000. These actions are expected to increase sales by $815,000 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 by $36,500. What effect will these changes have on the firm’s cash cycle? (Use 365 days in a year. Do not round your intermediate calculations. Round your answer to 2 decimal places.) What is the change in cash cycle? Answer in Excel and show formulas please.arrow_forward
- Kareem & Sons last year reported sales of 12 million and an inventory turnover ratio of 4. The company is now adopting a new inventory system. If the new system is able to reduce the firm’s inventory level and increase the firm’s inventory turnover ratio to 8 while maintaining the same level of sales, how much cash will be freed up? Medwing Corporation has a DSO of 19 days. The company averages 5,500 in credit sales each day. What is the company’s average accounts receivable? McDowell Industries sells on terms of 4/10, net 40. Total sales for the year are $825,500. Thirty percent of customers pay on the 15th day and take discounts; the other 70% pay, on average, 60 days after their purchases. What is the days sales outstanding? What is the average amount of receivables? What would happen to average receivables if McDowell toughened its collection policy with the result that all non-discount customers paid on the 40th day? International Industries sells on terms of 3/10, net 50.…arrow_forwardA firm is considering several policy changes to increase sales. It will increase the variety of goods it keeps in inventory, but this will increase inventory by $12,000. It will offer more liberal sales terms, but this will result in average receivables increasing by $69,000. These actions are expected to increase sales by $820,000 per year, and cost of goods will remain at 80% of sales. Because of the firm’s increased purchases for its own production needs, average payables will increase by $37,000. What effect will these changes have on the firm’s cash cycle? (Use 365 days in a year. Do not round your intermediate calculations. Round your answer to 2 decimal places.) Change in cash cycle daysarrow_forward10. Zervos Inc. had the following data for last year (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? Original $124,000 $80,000 $20,000 $16,000 $10,000 Revised Annual sales: unchanged Cost of goods sold: unchanged Average inventory: lowered by $4,000 Average receivables: lowered by $2,000 Average payables: increased by $2,000 Days in year $124,000 $80,000 $16,000 $14,000 $12,000 365 365 а. 34.6 days b. 39.2 days с. 37.2 days d. 33.3 days e. 36.9 daysarrow_forward
- Your consulting firm was recently hired to improve the performance of ABC Inc, which is highly profitable but has been experiencing cash shortages due to its high growth rate. As one part of your analysis, you want to analyze the firm's cash cycle. Using the following information and a 365-day year, what is the firm’s operating cycle? Average inventory = $75,000 Annual sales = $875,000 Annual cost of goods sold = $525,000 Average accounts receivable = $160,000 Average accounts payable = $25,000arrow_forwardA company has $20 million in cost of goods sold and an inventoryturnover ratio of 2.0. If it can reduce its inventory and improve itsinventory turnover ratio to 2.5 with no loss in units sold and no changein cost of goods sold, by how much will FCF increase? ($2 million)arrow_forwardMareez Pharma is trying to determine the effect of its inventory and receivable turnover ratios on its cash flow cycle. Mareez Pharma sales last year (all on credit) were $ 5,000,000, and its net profit was 10%. Its inventory turnover was 6.0 times during the year, and its average collection period was 40 days. Its annual cost of goods sold was $3,800,000. The firm had fixed assets totaling $1,500,000. Mareez Pharma payables deferral period is 50 days. Required: Calculate Mareez Pharma cash conversion cycle. Assuming Mareez Pharma holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. Suppose you have been recently hired by Mareez Pharma as CFO. Your finance manager who was expecting to be promoted as CFO has recommended you that it is possible to change annual inventory turnover to 9.5 times without affecting the sales. You know that management is keenly watching: cash conversion cycle, total assets turnover and ROA as your KPI.…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage LearningEBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT