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Prob 15-2 The Robinson Company has the following current assets and current liabilities for these two years: 2010 2011 Cash and marketable securities $ 50,000 $ 50,000 Accounts receivable $ 300,000 $ 350,000 Inventories $ 350,000 $ 500,000 Total current assets $ 700,000 $ 900,000 Accounts payable $ 200,000 $ 250,000 Bank loan $ - $ 150,000 Accruals $ 150,000 $ 200,000 Total current liabilities $ 350,000 $ 600,000 If sales in 2010 were $1.2 million, sales in 2011 were $1.3 million, and cost of goods sold was 70 percent of sales, how long were Robinson’s operating cycles and cash conversion cycles in each of these years? What caused them to change during this time? 2010 2011 AR period Inventory period AP period Operating cycle Cash conversion cycle Prob 15-3 The Robinson Company from Problem 2 had net sales of $1,200,000 in 2010 and $1,300,000 in 2011. a. Determine the receivables turnover in each year. 2010 2011 AR turnover b. Calculate the average collection period for each year. 2010 2011 Average collection period c. Based on the receivables turnover for 2010, estimate the investment in receivables if net sales were $1,300,000 in 2011. Receivables investment d. How much of a change in the 2011 receivables occurred? Expected change in AR Actual change in AR Prob 15-4 Suppose the Robinson Company had a cost of goods sold of $1,000,000 in 2010 and $1,200,000 in 2011. a. Calculate the inventory turnover for each year. Comment on your findings. 2010 2011 Inventory turnover Comments: b. What would have been the amount of inventories in 2011 if the 2010 turnover ratio had been maintained? Inventories investment Prob 15-5 Given Robinson’s 2010 and 2011 financial information presented in problems 2 and 4, a. Compute its operating and cash conversion cycle in each year. 2010 2011 Sales COGS Profit margin AR Inventory AP Sales/day COGS/day Inventory conversion period Average collection period Average payment period Operating cycle Cash cycle b. What was Robinson’s net investment in working capital each year? 2010 2011 Net investment in working capital Prob 15-6 Robinson expects its 2012 sales and cost of goods sold to grow by 5 percent over their 2011 levels. a. What will be the affect on its levels of receivables, inventories, and payments if the components of its cash conversion cycle remain at their 2011 levels? What will be its net investment in working capital? Receivables Inventories Payments Net investment in working capital New Sales Sales/day New COGS COGS/day b. What will be the impact on its net investment in working capital in 2012 if Robinson is able to reduce its collection period by five days, its inventory period by six days, and increase its payment period by two days? New Sales Sales/day New COGS COGS/day Estimated AR if reduced by 5 days Old collection period New collection period New AR estimate Estimated Inventory if conversion period COGS/day Old conversion period New conversion period New inventory estimate Estimated AP if payment period increased by 2 COGS/day Old payment period New payment period New AP estimate 2012 working capital Did the working capital increase or decrease from part a? Prob 15-7 Robinson expects its 2012 sales and cost of goods sold to grow by 20 percent over their 2011 levels. a. What will be the affect on its levels of receivables, inventories, and payments if the components of its cash conversion cycle remain at their 2011 levels? What will be its net investment in working capital? Receivables Inventories Payments Net investment in working capital New Sales Sales/day New COGS COGS/day b. What will be the impact on its net investment in working capital in 2012 if Robinson is able to reduce its inventory period by ten days? Estimated AR if reduced by 0 days Sales/day Old collection period New collection period New AR estimate Estimated Inventory if conversion period COGS/day Old conversion period New conversion period New inventory estimate Estimated AP if payment period increased by 0 COGS/day Old payment period New payment period New AP estimate 2012 working capital Did the working capital increase or decrease from part a? Beckheart is seeking financing for its inventory. Safe-proof Warehouses offers space in their facility for Beckheart’s inventory. They offer loans with a 15 percent APR equal to 60 percent of the inventory. Monthly fees for the usage of the warehouse are $500 plus 0.5 percent of the inventory’s value. If Beckheart has saleable inventory of $2 million, a. how much money can the firm borrow? Amount able to borrow b. what is the interest cost of the loan in dollars over a year? Interest cost c. what is the total amount of fees to be paid in a year? Monthly fee Annual fee d. what is the effective annual rate of using Safe-proof to finance Beckheart’s inventory? Interest cost plus fees Effective cost

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