1) Vanity Press, Inc., has annual credit sales of $1.6 million and a gross profit margin of 35%.
a) If firm desires to sustain the average collection period of 50 days, what level of accounts receivable must it carry? (Assume a 365-day year.)
b) Inventory turnover for this industry averages 6 times. If all of Vanity’s sales are on credit, what average level of inventory must the firm sustain to achieve same inventory turnover figure as industry?
2) What is the probable impact on the typical individual investor if firm undertakes a stock repurchase in lieu of a cash dividend?
i) Lower income taxes, if capital gains tax rates are less than dividend tax rates
ii) Higher income taxes, if capital gains tax rates are less than dividend tax rates
iii) Lower share price
iv) A tax-free transaction