1) Improving the cash conversion cycle
Use Wal-Mart's 2017 balance sheet and income statement from Hoover's database (access through the Regina Library) to calculate the Operating Cycle and Cash (Conversion) Cycle for Wal-Mart during the fiscal year ending in January, 2017.
Would Wal-Mart improve its Cash Conversion Cycle by reducing or increasing it? Explain your answer. List at least two ways that Wal-Mart could achieve this improvement.
Explain the possible risks Wal-Mart may face if it follows your suggestion.
2) Calculating the cash budget
Here are some important figures from the budget of Baltimore Baking for the first quarter of 2015:
January February March
Credit sales $ 300,000 $ 350,000 $ 350,000
Credit purchases 60,000 60,500 50,250
Cash disbursements
Wages, taxes, and expenses 42,750 49,000 51,250
Interest 8,300 8,300 8,300
Equipment purchases 79,000 81,000 0
In Baltimore Baking's experience, 7% of its credit sales will never be collected, 40% of its credit sales are paid in the month of the sale, and another 53% of its credit sales are paid in the month after the sale.
Credit purchases will be paid in the month following the purchase.
In December 2014, credit sales were $347,000 and credit purchases were $57,500. Using this information, complete the following cash budget (Round answers to the nearest whole dollar):
January February March
Beginning cash balance $ 655,000
$ ____________ $ ____________
Cash receipts
Cash collections from credit sales ____________ ____________ ____________
Total cash available ____________ ____________ ____________
Cash disbursements
Purchases ____________ ____________ ____________
Wages, taxes, and expenses ____________ ____________ ____________
Interest ____________ ____________ ____________
Equipment purchases ____________ ____________ ____________
Total cash disbursements ____________ ____________ ____________
Ending cash balance ____________ ____________ ____________
3) Supernormal Growth Model
GM is expected to grow at 12% in year 1, 11% in years 2 and 3, 8 % in year 4 and then grow at a constant rate of 5% in the years that follow. The required rate of return (Rs) equals 9%.
The company will pay a Dividend at the end of year 1 (D1) equal to 2.15. What is the expected price of this stock?