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Comprehensive Financial Management and Analysis

An in-depth study of financial management, focusing on cash conversion cycles, dividend policies, trade credit, and current asset investment strategies.

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    Comprehensive Financial Management and Analysis, page 1Comprehensive Financial Management and Analysis: Cash ConversionCycle, Dividend Policies, Trade Credit, and Current Asset InvestmentStrategies1. Cash conversion cyclePrimrose Corp has $12 million of sales, $3 million of inventories, $4 million ofreceivables, and $1 million of payables. Its cost of goods sold is 85% of sales, and itfinances working capital with bank loans at an 8% rate. Assume 365 days in year foryour calculations. Do not round intermediate steps.1.What is Primrose's cash conversion cycle (CCC)? Round your answer to twodecimal places.________days2.If Primrose could lower its inventories and receivables by 9% each andincreaseits payablesby 9%, all without affecting sales or cost of goods sold, what wouldbe the new CCC? Round your answer to two decimal places._______days3.How much cash would be freed-up? Round your answer to the nearest cent.$________By how much would pre-tax profits change? Round your answer to the nearest cent.$________Answer:

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    Comprehensive Financial Management and Analysis, page 52. Alternative dividend policiesIn 2011 the Keenan Company paid dividends totaling $3,990,000 on net income of $10million. Note that 2011 was a normal year and for the past 10 years, earnings have grownat a constant rate of 4%. However, in 2012, earnings are expected to jump to $13 millionand the firm expects to have profitable investment opportunities of $7.6 million. It ispredicted that Keenan will not be able to maintain the 2012 level of earnings growthbecause the high 2012 earnings level is attributable to an exceptionally profitable newproduct line introduced that year. After 2012, the company will return to its previous 4%

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    Comprehensive Financial Management and Analysis, page 6growth rate. Keenan's target capital structure is 40% debt and 60% equity.a.Calculate Keenan's total dividends for 2012 assuming that it follows each of thefollowing policies: (Write out your answers completely. For example, 25 millionshould be entered as 25,000,000.)1.Its 2012 dividend payment is set to force dividends to grow at the long-rungrowth rate in earnings. Round your answer to the nearest cent.$___________2.It continues the 2011 dividend payout ratio. Round your answer to thenearest cent.$___________3.It uses a pure residual dividend policy (40% of the $7.6 million investmentis financed with debt and 60% with common equity). Round your answerto the nearest cent.$___________4.It employs a regular-dividend-plus-extras policy, with the regular dividendbeing based on the long-run growth rate and the extra dividend being setaccording to the residual policy. Round your answer to the nearest cent.Regular-dividend$___________Extra dividend$___________Answer:

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