Assignment
Part I
• Define the cash conversion cycle (CCC) and explain why, holding other things constant, a firm's profitability would increase if it lowered its CCC
• What are the two definitions of cash, and why do corporate treasurers often use the second definition?
• What does it mean to adopt a maturity matching approach to financing assets, including current assets? How would a more aggressive or a more conservative approach differ from the maturity matching approach, and how would each affect expected profits and risk? In general, is one approach better than the others?
Part II
• PRO FORMA INCOME STATEMENT At the end of last year, Roberts Inc. reported the following income statement (in millions of dollars):
Sales $3,000
Operating costs excluding depreciation 2,450
EBITDA $ 550
Depreciation 250
EBIT $ 300
Interest 125
EBT $ 175
Taxes (40%) 70
Net income $ 105
Looking ahead to the following year, the company's CFO has assembled this information:
o Year-end sales are expected to be 10% higher than the $3 billion in sales generated last year.
o Year-end operating costs, excluding depreciation, are expected to equal 80% of yearend sales.
o Depreciation is expected to increase at the same rate as sales.
o Interest costs are expected to remain unchanged.
The tax rate is expected to remain at 40%. On the basis of that information, what will be the forecast for Roberts' year-end net income?
• LONG-TERM FINANCING NEEDED At year-end 2018, total assets for Arrington Inc. were $1.8 million and accounts payable were $450,000. Sales, which in 2018 were $3.0 million, are expected to increase by 25% in 2019. Total assets and accounts payable are proportional to sales, and that relationship will be maintained; that is, they will grow at the same rate as sales. Arrington typically uses no current liabilities other than accounts payable. Common stock amounted to $500,000 in 2018, and retained earnings were $475,000. Arrington plans to sell new common stock in the amount of $130,000. The firm's profit margin on sales is 5%; 35% of earnings will be retained.
o What were Arrington's total liabilities in 2018?
o How much new long-term debt financing will be needed in 2019? (Hint: AFN 2 New stock 5 New long-term debt.)
Format your assignment according to the following formatting requirements:
o The answer should be typed, using Times New Roman font (size 12), double spaced, with one-inch margins on all sides.
o The response also includes a cover page containing the title of the assignment, the student's name, the course title, and the date. The cover page is not included in the required page length.
o Also include a reference page. The Citations and references must follow APA format. The reference page is not included in the required page length.