MODULE 6 UTA FINA 3313

Libscomb Technologies' annual sales are $6,900,018 and all sales are made on credit, it purchases $3,523,671 of materials each year (and this is its cost of goods sold). Libscomb also has $592,135 of inventory, $508,326 of accounts receivable, and beginning and ending of year $477,659 and $489,281 accounts payables (respectively). Assume a 365 day year. What is Libscomb's Cash Cycle (in days)?

- Days Inventory Outstanding (DIO) = (Inventory/COGS)*365 days DIO = (592,135/3,523,671)*365 DIO = 61.34 days - Days sales Outstanding(DSO) = (Accounts Receivables/Revenue)*365 DSO = (508,326/6900,018)*365 DSO = 26.89 days - Days Payable Outstanding (DPO) = (Average Accounts Payable/COGS)*365 where, Average Accounts Payable = (Accounts Payable at the beginning + Accounts Payable at the end)/2 = ($477,659 + $489,281)/2 = $483,470 DPO = (483,470/3,523,671)*365 DPO = 50.08 days -Cash Cycle = Days Inventory Outstanding (DIO) + Days Sales Outstanding(DSO) - Days Payable Outstanding(DPO) Cash Cycle = 61.34 + 26.89 - 50.08 Cash Cycle = 38.15 days =38.15

Gillstrap Promotions has projected the following values for the next three months: JanuaryFebruaryMarchSales$352,000$379,000$402,285Purchases on Trade Credit$218,000$240,000$260,000Cash Expenses$88,000$91,000$94,000Taxes, interest, and dividends$18,000$20,000$41,000Capital Expenditures$50,0000$25,000 All sales are credit sales with 40% collected in the month of sale, 50% collected the following month, and the remainder collected in the second month after the sale. Credit purchases are paid in 30 days and all other items require immediate payment. Compute the net cash inflow for March.

-14386

Libscomb Technologies' annual sales are $5,414,177 and all sales are made on credit, it purchases $4,438,123 of materials each year (and this is its cost of goods sold). Libscomb also has $563,263 of inventory, $534,701 of accounts receivable, and $400,463 of accounts payable. Assume a 365 day year. What is Libscomb's Receivables Turnover?

2Receivables turnover ratio=Credit sales/receivables Where: Credit sales=$5,414,177 receivables=$534,701 Receivables turnover ratio= $5,414,177/$534,701 Receivables turnover ratio=10.12456 times =10.12

Libscomb Technologies' annual sales are $5,567,289 and all sales are made on credit, it purchases $3,077,182 of materials each year (and this is its cost of goods sold). Libscomb also has $557,912 of inventory, $499,504 of accounts receivable, and $437,543 of accounts payable. Assume a 365 day year. What is Libscomb's Inventory Period (in days)?

6inventory period = inventory/cost of goods sold *365 days Where : Inventory=$557,912 Cost of goods sold=$3,077,182 Inventory period= $557,912/$3,077,182*365 (557912/3077182)*(365)=66.1767422 Inventory period=66.17 days

Mavericks Cosmetics buys $3,828,691 of product (net of discounts) on terms of 6/10, net 60, and it currently pays on the 10th day and takes discounts. Mavericks plans to expand, and this will require additional financing. If Mavericks decides to forego discounts, what would the effective percentage cost of its trade credit be, based on a 365-day year? Answer in % terms to 2 decimal places.

856.83

Which of the following statements is correct? A.)The degree of operating leverage (DOL) depends on a company's fixed costs, variable costs, and sales. The DOL formula assumes (1) that fixed costs are constant and (2) that variable costs are a constant proportion of sales. B.)The degree of total leverage (DTL) is equal to the DOL plus the degree of financial leverage (DFL). C.)Arithmetically, financial leverage and operating leverage offset one another so as to keep the degree of total leverage constant. Therefore, the formula shows that the greater the degree of financial leverage, the smaller the degree of operating leverage. D.)For a given change in sales, the corresponding percentage change in net income could be more or less than the percentage change in operating income. E.)The degree of total leverage (DTL) is equal to the DFL divided by the degree of operating leverage (DOL).

A.) The degree of operating leverage (DOL) depends on a company's fixed costs, variable costs, and sales. The DOL formula assumes (1) that fixed costs are constant and (2) that variable costs are a constant proportion of sales.

Carlisle Transport had $4,148 cash at the beginning of the period. During the period, the firm collected $1,886 in receivables, paid $1,892 to supplier, had credit sales of $5,315, and incurred cash expenses of $500. What was the cash balance at the end of the period?

Cash Balance= Beginning cash+A/R-Paid Supplier-Cash Expense: 4,148+1,886-1,892-500=3,642 don't include credit sales. =3642

Hammond Supplies expects sales of 120,340 units per year with carrying costs of $4.28 per unit and ordering cost of $7.82 per order. Assuming the level of inventory is stable, what is the optimal average number of units in inventory? Round to the nearest whole number.

Formula = (2*order unit * ordering cost / carrying cost)^1/2 = (2*120340*7.82/4.28)^1/2 =663 Average inventory = EOQ/2 = 663/2 =332

Davis Supply maintains an average inventory of 2,000 dinosaur skulls for sale to filmmakers. The carrying cost per skull per year is estimated to be $150.00 and the fixed order cost is $63. What is the economic order quantity (EOQ)? (Round to the nearest whole number.)

Formula: EOQ Formula : (2*2000*63/150)^(1/2) =40.987 = 41 Particulars:Amount Annual Requirement: 2000 Buying cost per order : 63 Carrying cost per unit per annum : 150 Economic Order Quantity + 41 EOQ is 41 (rounded off).

Generally, increases in leverage result in______________ return and _____________________ risk.

Increased; Increased

Libscomb Technologies' annual sales are $6,165,591 and all sales are made on credit, it purchases $3,583,895 of materials each year (and this is its cost of goods sold). Libscomb also has $504,542 of inventory, $530,210 of accounts receivable, and $440,918 of accounts payable. Assume a 365 day year. What is Libscomb's Operating Cycle (in days)?

Inventory Period = 365 days * Inventory / Cost of Goods Sold Inventory Period = 365 * $504,542 / $3,583,895 Inventory Period = 51.38 days Receivable Period = 365 days * Accounts Receivable / Sales Receivable Period = 365 * $530,210 / $6,165,591 Receivable Period = 31.39 days Operating Cycle = Inventory Period + Receivable Period Operating Cycle = 51.38 days + 31.39 days Operating Cycle = 82.77 days

____________________ results from the use of fixed - cost assets or funds to magnify returns to a firm's owners.

Leverage

In theory, a firm should maintain financial leverage consistent with a capital structure that

Maximizes owners wealth

Mahrouq Technologies buys $17,341,625 of materials (net of discounts) on terms of 1/30, net 60, and it currently pays within 30 days and takes discounts. Mahrouq plans to expand, and this will require additional financing. If Mahrouq decides to forego discounts and thus to obtain additional credit from its suppliers, calculate the nominal cost of that credit. Answer in % terms to 2 decimal places (no % sign).

Nominal cost of trade credit = ((discount/(1-discount))*(365/(Total Pay Period - Discount Period)) = ((0.01/(1-0.01))*(365/(60-30))= 12.29% =12.29

Maverick Technologies has sales of $3,000,000. The company's fixed operating costs total $500,000 and its variable costs equal 60% of sales, so the company's current operating income is $700,000. The company's interest expense is $517,795. What is the company's degree of financial leverage (DFL)? Answer to 2 decimal places.

Operating income EBIT = $700,000 Interest R = $517795 Now, degree of financial leverage DFL DFL = EBIT / (EBIT - Interest) DFL = 700,000/(700,000 - 517,795) DFL = 700,000/182205 DFL = 3.84

Davis Supply maintains an average inventory of 2,000 dinosaur skulls for sale to filmmakers. The carrying cost per skull per year is estimated to be $150.00 and the fixed order cost is $71. What is the economic order quantity (EOQ)? (Round to the nearest whole number.)

Particulars:Amount Annual Requirement: 2000 Buying cost per order : 71 Carrying cost per unit per annum : 150 (2*2000*71/150)^(1/2) =43.512 = 44

Libscomb Technologies' annual sales are $6,814,883 and all sales are made on credit, it purchases $3,089,258 of materials each year (and this is its cost of goods sold). Libscomb also has $537,194 of inventory, $1,475,000 of accounts receivable, and $1,400,000 of accounts payable. Assume a 365 day year. What is Libscomb's Receivables Period (in days)?

Receivables period= receivables/credit sales*365 days Where: Credit sales=$6,814,883 Receivables=$1,475,000 Receivables period= $1,475,000/$6,814,883*365 Receivables period=78.99988825 days =78.99 days

A new restaurant is ready to open for business. It is estimated that the food cost (variable cost) will be 40% of sales, while fixed cost will be $460,335. The first year's sales estimates are $1,250,000. Calculate the firm's degree of operating leverage (DOL). Answer to 2 decimal places.

Sales S = $1,250,000 Variable cost VC = 40% of sales = 1,250,000×40% = $500,000 Fixed cost FC = $460335 Now, degree of operating leverage DOL DOL = (S - VC) / (S - VC - FC) DOL = (1,250,000 - 500,000)/(1,250,000 - 500,000 - 460335) DOL = 750,000 / 289665 DOL = 2.59

Maverick Technologies has sales of $3,000,000. The company's fixed operating costs total $494,447 and its variable costs equal 60% of sales. The company's interest expense is $500,000. What is the company's degree of total leverage (DTL)? Answer to 2 decimal places.

Sales S = $3,000,000 Variable cost VC = 60% of sales = 3,000,000×60% = $1,800,000 Fixed cost FC = $494,447 Interest R = $500,000 Now, degree of operating leverage DOL DOL = (S - VC) / (S - VC - FC) DOL = (3,000,000 - 1,800,000)/(3,000,000 - 1,800,000 - 494,447) DOL = 1,200,000 / 705553 DOL = 1.70 Now, degree of financial leverage DFL EBIT = S - VC - FC EBIT = 3,000,000 - 1,800,000 - 494447 EBIT = 705553 DFL = EBIT / (EBIT - Interest) DFL = 705553/(705,553 - 500,000) DFL = 705,553/205,553 DFL = 3.43 Now, degree of total leverage DTL DTL = DOL × DFL DTL = 1.70× 3.43 DTL = 5.83

The degree of operating leverage has which of the following characteristics?

The DOL relates the change in sales to the change in net operating income.

A new restaurant is ready to open for business. It is estimated that the food cost (variable cost) will be 73.85% of sales, while fixed cost will be $450,000. The first year's sales estimates are $763,851. Calculate the firm's operating breakeven level of sales. Answer to 2 decimal places.

Variable cost VC = 73.85% of sales Fixed cost FC = $450,000 Margin = 1 - VC = 1 - 73.85% = 26.15% Now, break even level of sales B B = FC / Margin B = 450,000 / 26.15% B = $1720841.30

Libscomb Technologies' annual sales are $6,499,784 and all sales are made on credit, it purchases $4,142,431 of materials each year (and this is its cost of goods sold). Libscomb also has $546,585 of inventory, $509,103 of accounts receivable, and beginning and ending of year $414,759 and $437,009 accounts payables (respectively). Assume a 365 day year. What is Libscomb's Cash Cycle (in days)?

cash conversion cycle = Days in inventory +Days in accounts receivable - days in payable Days in accounts receivable= Average accounts receivable/Revenue*365 =509103/6499784*365 =28.5890415743 Days in inventory=inventory / cost of goods sold *365 =546585/4142413*365 =48.1611864872 Days in payable =Payable/cost of goods sold Average accounts receivable=Beginning balance +closing balance/2 =414579+437009/2 =633083.5 =633083.5/4142413*365 =55.7828196995 CCC = 28.5890415743+48.1611864872-55.7828196995 =20.96 or 21 days =21 days

Libscomb Technologies' annual sales are $5,140,232 and all sales are made on credit, it purchases $3,949,307 of materials each year (and this is its cost of goods sold). Libscomb also has $538,241 of inventory, $476,051 of accounts receivable, and $422,905 of accounts payable. Assume a 365 day year. What is Libscomb's Inventory Turnover?

inventory turnover = cost of goods sold /inventory Where: Cost of goods sold= $3,949,307 Inventory=$538,241 Inventory turnover= $3,949,307/$538,241 =7.33 times