Ch 22 Mini Case
| Jen Poe | | | | | | | BUS657 Corporate Managerial Finance | | | | | | | | | | | | | Week #5 | | | | | | | Assignment - Chapter 22 Mini - Case | | | | | | | | | | | | | | | | | | | 1) Calculate BB's current cash conversion cycle. | | | | | | | | | | | | | BB's Ratios: | | | | | | | Average Age of Inventory | $842,020 / [(0.57 *$43,803,000) /365] | | 12.31 | days | | Average Collection Period | $3,240,222/($43,803,000/365) | | 27.00 | days | | Average payment Period | $1,826,070/[(0.57*$43,803,000)/365] | | 26.695 | days | | | | | | | | | BB's Cash Conversion Cycle = | AAI + ACP - APP | | | | | | BB's Cash Conversion Cycle = | 12.31 + 27 - 26.695 | | | | | | BB's Cash Conversion Cycle = | 12.615 | days | | | | | | | | | | | | | | | | | | 2) BB currently uses 3,000 ingots of aluminum each year to manufacure bracelet blanks. The order cost (including shipping) is $5,000 per order, and carrying costs are $75 per unit per year. Determine the economic order quantity, the amount of safety stock, and the reorder point for aluminum ingots assuming there is a 1-week lead time and the firm would like a safety stock of 3%. | | | | | | | | | | Economic Order Quantity = | √2 x current use x order cost / carry cost per unit per year = | | | | | √2 x 3,000 x 5,000 / 75 = | 632.46 | per order | | | | | | | | | | Ingots of aluminum per day = | 3000/365 = | 8.22 | ingots | | | | Reorder point = | 8.22*7 = | 57.40 | ingots | 147.40 | | | 3% safety stock = | 0.03*3000 = | 90 | ingots | | | | BB should reorder when they have 147.40 ingots remaining in stock in order to maintain their safety stock requirements. | | | | | | | | | | | | | | | | 3) In an attempt to boost sales, BB is considering relaxing its credit standards by