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Comprehensive Analysis of Cash Management, Working Capital, and Financing Decisions: A Case Study Approach

A comprehensive approach to cash management, working capital, and financing decisions in corporate finance.

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Comprehensive Analysis of Cash Management, Working Capital, andFinancing Decisions: A Case Study Approach1.Cash conversion cyclePrimrose Corp has $12 million of sales, $3 million of inventories, $4 million of receivables, and $1 million ofpayables. Its cost of goods sold is 85% of sales, and it finances working capital with bank loans at an 8%rate. Assume 365 days in year for your calculations. Do not round intermediate steps.1.What is Primrose's cash conversion cycle (CCC)? Round your answer to two decimal places._162.82_______days2.If Primrose could lower its inventories and receivables by 9% each andincreaseits payables by9%, all without affecting sales or cost of goods sold, what would be the new CCC? Round youranswer to two decimal places._____141.73__days3.How much cash would be freed-up? Round your answer to the nearest cent.$__409578.96______By how much would pre-tax profits change? Round your answer to the nearest cent.$_348142.07_______2.Problem 16-2Receivables investmentLamar LumberCompany has sales of $11 million per year, all on credit terms calling for payment within 30days; and its accounts receivable are $2.75 million. Assume 365 days in year for your calculations.a.What is Lamar's DSO? Round your answer to two decimal places.___91.25_____daysb.What would DSO be if all customers paid on time? Round your answer to two decimal places.__30______daysc.How much capital would be released if Lamar could take actions that led to on-time payments?Round your answer to the nearest cent.$___1845890.41_____3.Problem 16-3Cost of Trade Credit and Bank LoanLamar Lumber buys $8 million of materials (net of discounts) on terms of 3/5, net 60; and it currently paysafter 5 days and takes discounts. Lamar plans to expand, which will require additional financing. Assume365 days in year for your calculations.a.If Lamar decides toforgo discounts, how much additional credit could it obtain? Write out youranswer completely. For example, 5 million should be entered as 5,000,000. Round your answer tothe nearest cent.$_1205479.45_______b.What would be the nominal cost of that credit? Round your answer to two decimal places._20.52_______%

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