The Mitchem Marble company has a target current ratio of 2.2 but has experienced some difficulties financing its expanding sales in the past few months. At present the firm has a current ratio of 2.9 and current assests of $2.62 million. If Mitchem expands its receivables and inventories using its short-term line of credit, how much additional short-term funding can it borrow before its current ratio standard is reached? The additional amount of receivables and inventories (short term debt) is how many million?

The Mitchem Marble company has a target current ratio of 2.2 but has experienced some difficulties financing its expanding sales in the past few months. At present the firm has a current ratio of 2.9 and current assests of $2.62 million. If Mitchem expands its receivables and inventories using its short-term line of credit, how much additional short-term funding can it borrow before its current ratio standard is reached? The additional amount of receivables and inventories (short term debt) is how many million?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter18: The Management Of Accounts Receivable And Inventories

Section: Chapter Questions

Problem 10P

See similar textbooks

Similar questions

The Mitchem Marble Company has a target current ratio of 2.1 but has experienced some difficulties financing its expanding sales in the past few months. At present, the firm has a current ratio of 2.8 and current assets of $2.69 million. If Mitchem expands its receivables and inventories using its short-term line of credit, how much additional short-term funding can it borrow before its current ratio standard is reached? Question content area bottom Part 1 The additional amount of receivables and inventories (short-term debt) is $enter your response here million. (Round to two decimal places.)
Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $270,000 if credit is extended to these new customers. Of the new accounts receivable generated, 9 percent will prove to be uncollectible. Additional collection costs will be 6 percent of sales, and production and selling costs will be 75 percent of sales. 1. Compute the incremental income before taxes. 2. What will the firm’s incremental return on sales be if these new credit customers are accepted? (Round final answer to 2 decimals) 3. If the receivable turnover ratio is 5 to 1, and no other asset buildup is needed to serve the new customers, what will Johnson Electronics’ incremental return on new average investment be? (Round only the final answer to %)
The Mitchem marble Company has a target current ratio of 2.2 but has experienced some difficulties financing its expanding sales in the past few months. At present, the firm has a current ratio of 2.7 and current assets of $2.38 million. If Mitchem expands its receivable and inventories using its short-term line of credit, how much additional short-term funding can it borrow before its current ratio standard is reached?
Sunny Manufacturing is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $220,000 if credit is extended to these new customers. Of the new accounts receivable generated, 10 percent will prove to be uncollectible. Additional collection costs will be 5 percent of sales, and production and selling costs will be 70 percent of sales. a. Compute the incremental income before taxes. $ Incremental income before taxes b. What will the firm's incremental return on sales be if these new credit customers are accepted? (Round the final answer to 2 decimal place.) Incremental return on sales % c. If the receivable turnover ratio is 4 to 1, and no other asset buildup is needed to serve the new customers, what will Sunny Manufacturing's incremental return on new average investment be? (Do round intermediate calculations. Round the final answer to the nearest whole percentage.) Incremental return on new average investment %
NATO Co.’s business is booming, and it needs to raise more capital. The company purchases supplies from a single supplier on terms of 1/10, net 20 days, and it currently takes the discount. One way of getting the needed funds would be to forgo the discount, and NATO’s owner believes she could delay payment to 30 days without adverse effects. What is the effective annual rate of stretching the accounts payable?
A firm has arranged for a lockbox system to reduce collection time of accounts receivable. Currently the firm has an average collection period of 43 days, an average age of inventory of 50 days, and an average payment period of 10 days. The lockbox system will reduce the average collection period by three days by reducing processing, mail, and clearing float. The firm has total annual outlays of $15,000,000 and currently pays 9 percent for its negotiated financing. 1. Calculate the cash conversion cycle before the lockbox system? 2. Calculate the cash conversion cycle after the lockbox system? 3. Calculate the savings in financing costs from the lockbox system? Q2. The following data applies to a company. 1. The minimum cash balance is $8,000. 2. The variance of daily cash flows is 4,000,000, equivalent to a standard deviation of $2,000 per day. 3. The transaction cost for buying or selling securities is $50. The interest rate is 0.025 per cent per day. You are required to formulate…
Affleck Inc.'s business is booming, and it needs to raise more capital. The company purchases supplies on terms of 1/10, net 20, and it currently takes the discount. One way of acquiring the needed funds would be to forgo the discount, and the firm's owner believes she could delay payment to 40 days without adverse effects. What would be the effective annual percentage cost of funds raised by this action? (Assume a 365-day year.)
A firm has arranged for a lockbox system to reduce collection time of accounts receivable. Currently the firm has an average collection period of 43 days, an average age of inventory of 50 days, and an average payment period of 10 days. The lockbox system will reduce the average collection period by three days by reducing processing, mail, and clearing float. The firm has total annual outlays of $15,000,000 and currently pays 9 percent for its negotiated financing. A. Calculate the cash conversion cycle before the lockbox system B. Calculate the cash conversion cycle after the lockbox system C.
Bondi Beachwear Company expects sales next year to be $310,000. Inventory and accounts receivable will have to be increased by $65,000 to accommodate this sales level. The company has a steady profit margin of 15 percent, with a 10 percent dividend payout. How much external funding will Bondi Beachwear Company have to seek? Assume there is no increase in liabilities other than that which will occur with the external financing. External funds needed
Data on Wentz Inc. for last year are shown below, along with the payables deferral period (PDP) for the firms against which it benchmarks. The firm's new CFO believes that the company could delay payments enough to increase its PDP to the benchmarks' average. If this were done, by how much would payables increase? Use a 365-day year. Cost of goods sold = $74,000 Payables = $5,000 Payables Deferral Period (PDP) = 24.66 Benchmark Payables Deferral Period = 34.00 Please explain process and show calculations.
A company estimates that it will need $52,000 in 18 years to replace a computer. If it establishes a sinking fund by making fixed monthly payments into an account paying 6.3% compounded monthly, how much should each payment be? FORES: O OF Save A company estimates that it will need $52,000 in 18 years to replace a computer. If it establishes a sinking fund by making fixed monthly payments into an account paying 6.3% compounded monthly, how much should each payment be?
Kohwe Corporation plans to finance a new investment with leverage. Kohwe Corporation plans to borrow $49.3 million to finance the new investment. The firm will pay interest only on this loan each year, and it will maintain an outstanding balance of $49.3 million on the loan. After making the investment, Kohwe expects to earn free cash flows of $10.7 million each year. However, due to reduced sales and other financial distress costs, Kohwe's expected free cash flows will decline to $9.7 million per year. Kohwe currently has 4.6 million shares outstanding, and it has no other assets or opportunities. Assume that the appropriate discount rate for Kohwe's future free cash flows is 7.9% and Kohwe's corporate tax rate is 40%. What is Kohwe's share price today given the financial distress costs of leverage? The price per share is $23.01 per share. (Round to the nearest cent.) C