Problem:
Primrose Corp has $16 million of sales, $3 million of inventories, $4 million of receivables, and $2 million of payables. Its cost of goods sold is 80% of sales, and it finances working capital with bank loans at an 8% rate. Assume 365 days in year for your calculations. Do not round intermediate steps.
Required:
Question 1: What is Primrose's cash conversion cycle (CCC)?
Question 2: If Primrose could lower its inventories and receivables by 7% each and increase its payables by 7%, all without affecting sales or cost of goods sold, what would be the new CCC?
Question 3: How much cash would be freed-up?
Question 4: By how much would pre-tax profits change?
Note: Provide thorough explanation of every question given in the problem.