Reference no: EM131176426
Prestopino Corporation produces omtorcycle bateries. Prestopino turns out 1,500 batteries a day at a cost of $6 per battery for materials and labor. It takes the firm 22 days to convert raw mateials into a battery. Prestopinoi allows its customers 40 days in wh ich to pay for the batteries, and the firm generally pays its suppliers in 30 days.
a. What is the length of Prestopino's cash of Prestopino's cash conversion cycle?
b. At a steady state in which Prestopino produces 1,500 batteries a day, what amount of working captial must it finance?
c. By what amount could Prestopino reduce its working capital financing needs if it was able to stretch its payables deferral period to 35 days?
d. Prestopino's management is trying to analyze the effect of a proposed new production preocess on its working captial investment. The new production proces would allow Prestopino to decrease its inventory conversion period to 20 days and to increase its daily production to 1,800 batteries. However, the new process would cause the cost of materials and labor to increase to $7. Assuming the change does not affect the av erage collection period (40 days) or the payables deferral period (30 days), what will be the length of its cash conversion cycle and its working captial financing requirement if the new production proccess is implemented?
Please give step-by-step details with formulas.
|
Using your required rate of return as the discount rate
: StartCo is an early stage company whose financial plans call for the company to be sold in 5 years, at a valuation of $10 million. You are considering an investment of $100,000 in StartCo; you like the company but feel that it is fairly risky venture..
|
|
How many shares will the convertible debt holders receive
: Selling equity at this stage clearly is not attractive – they would have to give up most of the company, as little value has been created so far. So the founders are considering a different funding scheme to skirt the valuation issue (or at least to ..
|
|
The fed will raise rates at the end
: Assume your boss believes the cap is too expensive and is not convinced that the Fed will raise rates at the end of summer 2014. What can you do to reduce the premium, given the availability of the floor as described above? What position have you cre..
|
|
If the founders were to raise money by selling equity
: Schwadin’s Shawarma Shops (S3 ) is a new restaurant chain in its early stages. The founders have great plans, but need to test their restaurant design, their recipes, and their franchising business model. They need $200,000 to outfit a first, small s..
|
|
Cash of prestopinos cash conversion cycle
: Prestopino Corporation produces omtorcycle bateries. Prestopino turns out 1,500 batteries a day at a cost of $6 per battery for materials and labor. It takes the firm 22 days to convert raw mateials into a battery. What is the length of Prestopino's ..
|
|
Call option on euro and euro spot rate
: ABC Corportion has 90-day receivables of Euro 500,000. The following info is available: A call option on Euro that expires in 90 days has an exercise price of $1.20 and has a premium of $0.03. A put option on Euro that expires in 90 days has an ecerc..
|
|
Compute the effective yield in dollar terms
: If you invest $6,000 in a Euro bond for 1 year paying 5% interest. At the time the investor bought the Euro bond, the exchange rate was $1.00 per Euro. If 1 year later you convert the maturity value of the investment in Euro to US dollars, the exchan..
|
|
What is estimated annual after-tax cash flow for year four
: A company with a 34% marginal income tax rate is considering an investment that is classified as 3-year property in the MACRS depreciation schedule. The investment has the estimated following benefits: What is the income tax owed in year 3? What is t..
|
|
Calculate the net present value-mirr and profitability index
: The manager of PPO Inc. plans to manufacture engine blocks for classic cars from the 1960s. The revenue from the blocks will be $750,000 per year for each of the next 4 years. The equipment will cost $800,000 depreciated using a 3 year MACRS life. Wh..
|