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FIN222 Week 10_T CH19 P1,2,3,6,7,8,12,13,14,15,17 (11 Questions,16 parts) P1 Simpson Boats has accounts payable days of 20, inventory days of 50 and accounts receivable days of 30. What is its operating cycle? 50 + 30= 80 P2 FastChips Semiconductors has inventory days of 75, accounts receivable days of 30 and accounts payable days of 90. What is its CCC? 75+ 30- 90= 15 P3

Northerly Industries has the following financial information. What is its CCC?

Sales

$100 000

Cost of goods sold

$80 000

Accounts receivable

$30 000

Inventory

$15 000

Accounts payable

$40 000

Invdays 

15,000 68.44 80,000 / 365

30,000 A / Rdays  109.5 100,000 / 365 40,000 A / Pdays  182.5 80,000 / 365 CCC 68.44 109.5  182.5  4.56 P6 The Russian Connection had sales of $32 million in 2016, and a cost of goods sold of $20 million. A simplified balance sheet for the firm appears below: The Russian Connection Balance sheet as at 31 December 2016 ( in $ thousands) Assets Liabilities and Shareholders’ Equity Cash

$2 000

Accounts Payable

$ 1 500

Accounts receivable

3 950

Notes payables

1 000

Inventory

1 300

Accruals

1 220

Total Current Assets

7 250

Total Current liabilities

3 720

Net Plant property & Equip

8 500

Long-term debt

3 000

Total Assests

15 750

Total liabilities

6 720

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Issued Equity

9 030

Total liabilities and Shareholder’s equity

15 750

a. Calculate The Russian Connection’s net working capital in 2016. 7250- 3720= 3530 mil b. Calculate the CCC of The Russian Connection in 2016. 1,300,000 23.7 20,000,000 / 365 1,500,000 A / Pdays   27.4 20,000,000 / 365 3,950,000 A / Rdays   45.1 32,000,000 CCC  23.7  45.1 27.4  41.4 Invdays 

c. The industry average accounts receivable days is 30 days—what would the CCC for The Russian Connection have been in 2016 had it matched the industry average for accounts receivable days? CCC= 23.7+ 30- 27.4= 47.7 7. Assume the credit terms offered to your firm by your suppliers are 3/5, net 30. Calculate the cost of the trade credit if your firm does not take the discount and pays on day 30. 365

3  25  EAR  1    1 0.5594  97  8. Your supplier offers terms of 1/10, net 45. What is the effective annual cost of trade credit if you choose to forgo the discount and pay on day 45? 365

1  35  EAR  1    1 0.1105  99  P12 The Super Power Tool Company has the following accounts on its books: Customer

Amount owed($)

Age(days)

ABC

50000

35

DEF

35000

5

GHI

15000 Page 2 of 6

10

KLM

75000

22

NOP

42000

40

QRS

18000

12

TUV

82000

53

WXY

36000

90

The firm extends credit on terms of 1/15, net 30. Develop an ageing schedule using 15-day increments through to 60 days, and then indicate any accounts that have been outstanding for more than 60 days. age

Value account

of %

0-15

68,000

19.3%

16-30

75,000

21.2%

31-45

92,000

26.1%

46-60

82,000

23.2%

Over 60

36,000

10.2%

total

353,000

100.0%

There is only one account that is more than 60 days old, which is WXY

P13 

Simple Simon’s Bakery purchases supplies on terms of 1/10, net 25.



If Simple Simon’s chooses to take the discount offered, it must obtain a bank loan to meet its short-term financing needs.



A local bank has quoted Simple Simon’s owner an interest rate of 12% on borrowed funds.



Should Simple Simon’s enter the loan agreement with the bank and begin taking the discount? 1 EAR  1    99 

365 15

 1 27.70% 365

EAR bank

 15   0.12    1 12.72%  1  365    15   . Page 3 of 6

27.70% > 12.72%, yes, it should. P14

Your firm purchases goods from its supplier on terms of 3/15, net 40.

a. What is the effective annual cost to your firm if it chooses not to take the discount and makes its payment on day 40? 3   1   97 

365 25

 1  55.94%

b. What is the effective annual cost to your firm if it chooses not to take the discount and makes its payment on day 50? 365

3  35   1    1  37.35%  97  P15 Use the financial statements supplied below for International Motor Corporation (IMC) to answer the following questions.

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a. Calculate the CCC for IMC for both 2015 and 2016. What change has occurred, if any? All else being equal, how does this change affect IMC’s need for cash? 2015 : sales 60,000,000, COGS 52,000,000 6,200,000 Invdays   43.52 52,000,000 / 365 3,600,000 A / Pdays  25.27 52,000,000 / 365 2,800,000 A / Rdays  17.03 60,000,000 / 365 CCC 43.52  17.03  25.27 35.28

2016 : sales 75,000,000, DOGS 61,000,000 6,600,000 Invdays  39.49 61,000,000 / 365 4,600,000 A / Pdays  27.52 61,000,000 / 365 6,900,000 A / Rdays  33.58 75,000,000 / 365 CCC 39.49  33.58  27.52 45.49

The number of days of accounts receivable increased, and the CCC of IMC was extended. With fewer inventory days, IMC will spend more time paying suppliers. This increases IMC's demand for cash. b. IMC’s suppliers offer terms of net 30. Does it appear that IMC is doing a good job of managing its accounts payable. IMC's suppliers have given a net term of 30 days. Although no discount is given, there are also interest-free loans equivalent to 30 days. IMC's suppliers have considered waiting for a long time before they can get payment, and the company will also consider early repayment in order not to pay

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more interest to the supplier. Therefore, IMC has a good management of accounts payable，但可以 在第 30 天的时候支付。

P17 Andropov Suppliers Limited had $20 million in sales in 2016. Its cost of goods sold was $8 million, and its average inventory balance was $2 million. a. Calculate the average number of days inventory outstanding ratios for Andropov. Invdays 

2,000,000 91.25 8,000,000 / 365

b. The average days of inventory in the industry is 73 days. By how much would Andropov reduce its investment in inventory if it could improve its inventory days to meet the industry average? inventory  inventory 1,600,000 8,000,000 / 365 2,000,000  1,600,000 400,000 73 

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