Chapter 14 Case : A : Roche Operating Cycle = AAI + ACP = 120 + 60 = 180 days CCC = OC APP = 180 -25 = 155 Days

Res. inv. needed = operation cycle annul expense * CCC /365 = 12 000 000 * 155 / 365 = $ 5 095 890

B: According to industry Standards : OC = 85 + 42 = 127 Days CCC = 127 40 = 87 Days Resource investment needed = 12 203 000 * 87 /365 = $ 2 908 660

C: Difference in Finance needed = $ 5 095 890 - $ 2 908 660 = $ 2 187 230 Cost of inefficiency = 2 187 230 *12 % = $ 262 468 D: Effect of Sales Increase Additional CM Effect of A/R investment Current Plan A/R period days Investment of A/R (T.V.C * 60/365) Total VC Investment of A/R ) Proposed Plan A/R period days Investment of A/R (T.V.C * 60/365) Total VC Investment of A/R ) Saving in A/R Saving in cost of A/R = .12 x invwstment Saving Total Saving/Loss From Credit Relaxation Effect Of Cash Discount Cost of cash effect (=.02 x $15'000'000 x .75 ) Net Profit by applying new collection strategy and 10 days discount : E: Annual cost to achieve the industry level = 150 000+53 000-225 000 = $ 428 000

$

250,000

60 11,000,000 1,808,219 42 12,000,000 1,380,822 427,397 51,288 $ 51,288

$ $

(225,000) 76,288

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