Question 1: MedCo is a large manufacturing company, currently using a large printing press in its operations and is considering two replacements: the PDX341 and PDW581. The PDX341 costs £500,000 and has annual maintenance costs of £10,000 for the first five years and £15,000 for the next five years.
After 10 years, the PDX341 will be scrapped (salvage value is zero). In contrast, the PDW581 can be acquired for £50,000 and requires maintenance of £30,000 a year for its 10-year life.
The salvage value of the PDW581 is expected to be zero in 10 years.
Complete the following: Assuming that MedCo must replace their current printing press (it has stopped functioning), has a 10% cost of capital and all cash flows are after tax, which replacement press is the more appropriate as calculated by using the NPV approach?
Question 2: XYZ Ltd. is an online book company. The following information has been derived from the past two years' financial statements of XYZ. Item Fiscal Year 2010 Fiscal Year 2009 Revenue £5103.0 £4510.0 COGS £3533.0 £3555.0 Inventory £1310.0 £1272.6 Accounts/Receivable £98.1 £90.5 Accounts/Payable £818.8 £745.1 All sales and purchases are made on credit.
Complete the following
1. Calculate the cash conversion cycle (CCC) of XYZ.
2. Amazon, the biggest competitor, presented a CCC of -73 days for the same fiscal year of 2010: What is the interpretation of a negative CCC? What should XYZ do to compete better with Amazon?