Rock Stone has:$13 million of sales$2 million of inventories$3 million

QUESTION

Rock Stone has:$13 million of sales$2 million of inventories$3 million of receivables$2 million of payablesIts cost of goods sold is 75% 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. Rock
Sales = $13,000,000, Inventory = $ 2,000,000 A/R = $3,000,000, A/P = $ 2,000,000 COGS = 0.75 , Interest on bank loans = 8% CCC = Inventory Conversion Period Average Collection Period Payables deferral Period Inventory Conversion Period Inventory / Cost of goods Sold per day 2,000,000/ (0.75x $13,000,000) /365 74.87 Average Collection Period Receivables / Sales /365 3,000,000 / $13,000,000 / 365 84.23 Payables deferral Period Paybles / Cost of goods Sold/365 2,000,000 / $26712.32 74.87 CCC 84.23 Inventory = $ 2,000,000 x 0.9 = $1,800,000 A/R = $3,000,000 x 0.9 = $2,700,000 A/P =$ 2,000,000 x 0.9 = $1,800,000 Inventory Conversion Period Inventory / Cost of goods Sold per day $1,800,000/$ 26712.32 67.38 days Average Collection Period Receivables / Sales

/365 2,700,000 / $13,000,000 / 365 75.80 days Payables deferral Period Paybles / Cost of goods Sold/365 1,800,000/$ 26712.32 67.38 days New CCC 67.38 days. ================ Cash Freed up = Delta Inventory = (74.87- 67.38) x $ 26712.32 = $ 200,075.27 Delta Receivables = (84.23- 75.80) x $ 35616.43= $300,246.57 Delta Payables = (74.87-67.38) x $ 26712.32 = $ 200,075.27 Cash Freed up =$ 200,075.27 $300,246.57-$ 200,075.27 = $300,246.57 ===================== = $ 24,019———— increase in per tax profit

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