Problem:
Primrose Corp has $17 million of sales, $3 million of inventories, $4 million of receivables, and $1 million of payables. Its cost of goods sold is 65% of sales, and it finances working capital with bank loans at a 9% rate. Assume 365 days in year for your calculations. Round intermediate steps to 2 decimal places.
Required:
Question 1: What is Primrose's cash conversion cycle (CCC)?
Question 2: If Primrose could lower its inventories and receivables by 8% each and increase its payables by 8%, 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: Explain all calculation and formulas.