24. Following are a company's income statement at the end of the last year (year 0) andcoming year (year 1). Each year, the company's accounts receivable need to be main-tained at 5% of sales. The company's inventory and accounts payable do not change.Capital expenditure in year 1 is $10,000.YearSalesDepreciationEBITTaxes(a) What is the free cash flow in year 17185,000 92,00020,000 22,00017,000 19,5003,500 3,7000(b) The company's business is mature, so it is expected to generate the same amountof free cash flow every year forever. The firm-specific discount rate is 7%, and therisk-free rate is 2%. What is the enterprise value of the company?(c) The company has $150,000 in cash and $50,000 in debt. In addition, it has 7000shares outstanding. What is the company's stock price per share?

Free cash flows are cash flows that are available for investors after firm has met all operating…

24. Following are a company's income statement at the end of the last year (year 0) and coming year (year 1). Each year, the company's accounts receivable need to be main- tained at 5% of sales. The company's inventory and accounts payable do not change. Capital expenditure in year 1 is $10,000. Year Sales Depreciation EBIT Taxes 0 1 85,000 92,000 20,000 22,000 17,000 19,500 3,500 3,700

24. Following are a company's income statement at the end of the last year (year 0) and coming year (year 1). Each year, the company's accounts receivable need to be main- tained at 5% of sales. The company's inventory and accounts payable do not change. Capital expenditure in year 1 is $10,000. Year Sales Depreciation EBIT Taxes 0 1 85,000 92,000 20,000 22,000 17,000 19,500 3,500 3,700

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter14: Statement Of Cash Flows

Section: Chapter Questions

Problem 43E

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Strickler Technology is considering changes in its working capital policies to improve its cash flow cycle. Stricklers sales last year were 3,250,000 (all on credit), and its net profit margin was 7%. Its inventory turnover was 6.0 times during the year, and its DSO was 41 days. Its annual cost of goods sold was 1,800,000. The firm had fixed assets totaling 535,000. Stricklers payables deferral period is 45 days. a. Calculate Stricklers cash conversion cycle. b. Assuming Strickler holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. c. Suppose Stricklers managers believe the annual inventory turnover can be raised to 9 times without affecting sale or profit margins. What would Stricklers cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 9 for the year?
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