Quiz 7 V2
Liquidity Measures (2 points)
1. Calculate the
following liquidity
measures and fill in
the highlighted
cells, based on
Tables 1 & 2.
•
Note: DSO, DIH, and
DPO should use the
average measures of
balance items.
Table 1: Viet Manufacturing Co. Income Statement
($ in millions, Fiscal Year ending December 31)
FY2023
Sales
1,050.00
Cost of Goods Sold
735.00
Gross Profit
315.0
Selling, General & Administrative
157.50
EBITDA
157.5
Depreciation & Amortization
25.00
EBIT
132.5
FY2024
1,100.00
770.00
330.0
165.00
165.0
27.00
138.0
*** All sales are credit sales.
Table 2: Viet Manufacturing Co. Working Capital Data
($ in millions, Fiscal Year ending December 31)
FY2023
Current Assets
Accounts Receivable
Inventory
Prepaid Expenses and Other
Total Current Assets
Current Liabilities
Accounts Payable
Accrued Liabilities
Other Current Liabilities
Total Current Liabilities
FY2024
150.0
120.6
17.1
287.7
118
95
10
223.0
50.0
15.0
15.0
80.0
69
27.7
37.7
134.4
Net Working Capital
Current Ratio
Quick Ratio
Days Sales Outstanding
Days Inventory Held
Days Payables Outstanding
Operating Cycle
Cash Conversion Cycle
2
Optimum Cash Balance (1.5 points)
2. Viet Company’s Cash Management information:
•
•
•
•
Viet Company currently holds a $80,000 cash balance in its deposit account.
An investment in marketable securities will yield an average 8% return per year.
The transaction cost for converting the marketable securities into cash is $50 per transaction.
The company needs a $40,000 cash balance per month to finance various operating expenses.
A.
B.
C.
D.
Using Baumol’s EOQ model, find the optimum cash balance to hold.
How much can the company invest in marketable securities?
How often does the company need to convert the marketable securities into cash?
What will the optimized total cost be?
A
C*
B
Available Balance
C
Frequency of transaction
D
Optimized total cost
3
Account Receivables (1.5 points)
3. Viet Store considers providing a 2% discount on a purchase of $10,000 payable in 20 days. Without the cash
discount, customers have to pay off within 30 days. The interest rate (opportunity cost) applied to Viet
Store is 8%. Answer the following questions using the Time Value of Money concept (365 days/year).
A.
B.
Evaluate the cash discount option compared to the existing accounts receivable policy.
Viet Store expects a 10% increase in sales with the 2% cash discount policy explained in A, and it incurs a $5,000 variable cost per
$10,000 in sales. Should Viet Store adopt the cash discount policy?
A
Current policy
Net 30
0
10
20
PV
30
10,000
Cash discount
3/20, net 30
0
10
20
30
10
20
30
PV
B
Current policy
NPV
Net 30
0
-5,000
Discount policy
10,000
3/20, net 30
-5000
4