Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

Mini Case:  Cash Conversion, Inventory, and Receivables Management

Bracelet Blanks, Inc. (BB) generated $43,803,000 in sales (all on credit) during 2010.  The cost of goods sold (COGS) was 57% of that total.  Accounts receivable (A/R) totaled $3,240,222, inventory totaled $842,020 and accounts payable (A/P) totaled $1,826,070.
Instructions – complete as an excel worksheet and show all calculations for this assignment.

problems:

1. Compute BB's current cash conversion cycle.

2. BB presently uses 3,000 ingots of aluminum each year to manufacture bracelet blanks.  The order cost (including shipping) is $5,000 per order, and carrying costs are $75 per unit per year.

a. Determine the economic order quantity

b. Amount of safety stock

c. The reorder point for aluminum ingots assuming there is a 1-week lead-time and the firm would like a safety stock of 3%.

3. In an attempt to boost sales, BB is considering relaxing its credit standards by extending more credit to small firms.  BB charges $1.50 per unit.  Variable costs are $0.5126 per unit and fixed costs are $10,000,000 per year.  The relaxation of credit standards is expected to result in a 3.8% increase in sales (the firm has sufficient excess capacity to handle the increase) as well as an increase of three days in the average collection period.  They also expect bad debts to rise from the current level of 0% to 0.5% of sales.

a. Assuming that BB requires a 13% return on investments of this type, should the firm relax its credit standards?

4. Additionally, BB currently offers its credit customers terms of net 30.  However, it is considering changing the terms to 2/10 net 30 in an attempt to reduce the amount of time it takes to collect its accounts receivable (A/R).  The firm believes this change alone would decrease the average collection period by five days.  BB also expects that 63% of its customers will elect to pay within the discount period and that the increased attractiveness of the terms will increase sales by 1% a year.  It is not expected that bad debs will change from the current level of 0% because of this change in terms.  BB's opportunity cost of funds invested in accounts receivable (A/R) is 10%.

a. Should the firm offer the cash discount?

b. Evaluate this scenario separately from the one described in problem 3.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M91849

Have any Question? 


Related Questions in Basic Finance

Use the same information as in problem now assume a loan

Use the same information as in problem. Now assume a loan for $1.5 million is obtained at a 10 percent interest rate and a 15-year term. a. Calculate the expected IRR on equity and the standard deviation of the return on ...

If a stock has both diversifiable risk and nondiversifiable

If a stock has both diversifiable risk and nondiversifiable risk, which, if any, of these risks are considered in the pricing of the asset? In the context of the CAPM, what is the term represented by E(RM) - Rf? Explain ...

An asset management firm has a 300 million portfolio

An asset management firm has a $300 million portfolio consisting of all stock. It would like to divest 10 percent of its stock and invest in bonds. It considers the possibility of synthetically selling some stock using e ...

Quizquestion 1 according to the text a risk-averse investor

QUIZ Question 1. According to the text, a risk-averse investor _____. demands a premium for assuming risk will only participate in low-risk or risk-free investments is one of a small minority in the United States More th ...

Revisenbspthe passage to avoid platitudes obvious flattery

Revise the passage to avoid platitudes, obvious flattery, and exaggeration. You, our loyal and dedicated employees, have always been the most qualified and the hardest working in the industry. Because of your faithful an ...

1 how can a company effectively force conversion of a

1. How can a company effectively force conversion of a convertible security? 2. What is the preemptive right of common stockholders? In what type of company is the preemptive right important? Unimportant? 3. Why would a ...

1 what are some of the common characteristics of those

1. What are some of the common characteristics of those entrepreneurial growth companies that are able to attract venture capital investment? In which industries and states is the majority of venture capital invested? 2. ...

1 distinguish between a eurobond a foreign bond and a

1. Distinguish between a Eurobond, a foreign bond, and a Yankee bond. Which of these three represents the greatest volume of security issuance? 2. What do you think are the most important costs and benefits of becoming a ...

What distinguishes a partnership from a corporation what is

What distinguishes a partnership from a corporation? What is limited liability? How does income get taxed twice in the case of a corporation? Which forms of business have a perpetual life? What are agency costs? What is ...

1 what is meant by value-added services why are these

1. What is meant by value-added services? Why are these services considered essential in a customer success program? 2. How could a company use the four-stage process of cost-effectiveness, market access, market extensio ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro