PLEASE ANSWER AT LEAST 5 QUESTIONS

For as long as he could remember, Calvin MeGince had etjoyed long car trips hs a child he had spent summers travelling with his family, by car, to most parts of the Unitst Srates. To him, road trips were the most fun one could have, espectally if you cauli stop glong the way and enjoy the sights. Not surprisingly. Calvin became a long-haul irucker atter ooliege. It mid goad hages and had the advantage of allowang him to see the country tom the sab of his truck. He couldn't do any sightseeing this way. of course, but he fipured that there was always time for that later. Six years of apen road trucking took its toll, towever, and Calvin was thed of the kag hours and poor working conditions. As he became more and more discontent whih the trucking industry, he started to look for ways to use his knowled ge to start a basiness of his own Calvin founded McGhee Corporation in the late 19805. McGhee specialized in "jobber" sales at truck stops and travel centers across the US. and Canada. "Rack jobbers" came in and stocked one part of the store, maiaising nventocy and keeping track of consumer interests and popular products. In meny cases, these tems were the only shopping opportunity that truckers had during the week. Calvis hab been able to start small by capitalizing on his know ledge of the trucker lifestyle and the reeds of those on the toad. Initially, he contracted for sheit space at truck stops in his regon and filed that space with wholesale goods he found at closeout saies and business auctions. Truckers hist responded by snapping up the toys, books and small appliances that Calvin thought would be appreciated. Within two vears Caivin had hired a dozen other employees oa tels with his routes, and after another two vears he needed dozens mone In atdikon, to had Found onays w boutes, and aliet anohher iwo years he aeeded doeens mose ln shakik, herted goods and keep his inventory oonsistent acros; the countr: By the end of 2003 , McGhec Corporation had become ore of the largest jobters in the GET YOUR MOTOR RUNNING US. The firm sponsored many products for import, with its own briad barks, and had successfully offered lnternet ordering only a year betore The conpaty sold cvenihing trom 135 seetions in thousands of locations across the country. Finally. Colvin MeGhee the ght he would be able to take the tume to travel and be a tourist agaim. In order for Calvin to do this, however, it was necessary for him to spend less and iens time in the office. To this ead, he had spent time the previous yeas hiring and trainitge a rew assistant and teaching her the intricacies of the rack jobber husiness, Sheryl Plath was juss 2 few montis out of school and trying as hard as she could to leam everything neou. MeGince and his wusiness. Mr. McGhee had placed a great deal of laith in her, and at was abvious that he planned to pat at least part of the future of his company in her hands. THE CASH-TO-CASH CVCLE Calvin had challenged Mc. Path using a series of exenctses involvitg the formis accounting numbers. This week, the lesson was in the areat of working capital manzeenent! In addition to her regular tasks, Sheryl was expected to wors on this problem and present her tindings to Mr. McGihee at the end of the week. Calvia had prepared a Galance stect rexhibit 1) and some additional infotmation atoot the firm's cost struetire (Extribit 2i. Bost statements were based upon 365 days in the fim's fiscal year. Exhibit 1. MeGhee Corporation. Balance Sheet, December 31, 2003. whit 2. Selected 1ncome Statement Information, December 31,20013 . working through the difference between the cesin-ti-cash cycle for sssels and she cycce for so much credit from our suppliers," he reminded her he gave horswing "We can only ga and its importance (Exhibit 3). As he left for another road trip. Calvin smied and remindos Sheryl that "evey minus: you spend with this finance stuff now is twenty minutes saved later an' He would bs becs on Feiday afternoon, and they could talk about the fim's working dapital then. Exhibit 3. Memo Regarding Firm's Cash Cycle: 12/31:03. Sheryl: The usual thing to worry about is the difference between sssets ard liabinice If assets convert to cash faster than liabilties, that's a good thing but fints a rery unusual situation. More aften, your liabilities will te "oue, essertially betome your reccivables have come in fully. Cast sales, when they actualy harpen. will selp shorten the asset cash-to-cash cycle and make your job caser - "e math have significant cash sales, as you've probably leaned in the psst tew monns. To figure out how the assets and liabilities work rogether on thas, you ineed oo 'ne some numbers in front of you. In particular. You'll want to know what out werbe daily sales and cost of goods sold are, and what our average purchases are Finzly, th would be useful to know eur average daily operating experses, too Once you have all of that stufi, convert the balance sleat inta its daily equivalen: For example: part of the asset cash-to-cash cycle is the daily fevel af cahh on hrat You can find this by dividing the cash amount on the balance sheet by the averagdaily sales figure to get "days cash" Accounts reveivabie is alsa dirotly, relaed to our sales ligures, but when looking at average invertory be sure ta cucsider our dally COGS instead. On the other side of the balance sheet, gayabies are clazely telated te average daily purchases and acenials are related to operating experies. The asset cash-to-tain eycle is the conibination of the "days cash," the simil 2t measure for accounts recuisbic. and the inventory "days" "This is rougily how long it takes is to conten a saic inte cash, on average. For the liabillies, we lonk at days payable" and "days accruak" as mentioned These tho numbers teil as low nuch wes rely upon suppliets and employees for credit, and added together give us the number ol days an the liability east-or-cast cycie. The difference between the total days in the asset eycle and the total days in the liability cycte is the number of days' worh of financing we li nee durine the periad When used with our daily COGS number. it can lell us how mach bonk finarcing as wight need during that time If nothing else, it provides a rough estimate lor using when w e plan for a new year. and it helps us evaluate the rest of nur working capital. REQUIRED 1. Using the information in Exhibits I and 2. calculate McGhee's average daily saies, average dally cost of goods sold. uverage daily purclases. and average operating expenses. How much control does the firm have over each of these items? 2. Convert the assel portion of the tion's balance shect in Exhibit I iato its daily ecuivaler:. How many days does the firm have sn its asset "cash-to-cash" eycle? 3. Convert the shot-term liabilities on the balance sheet into their daily equialents. Hon many days are in MeGhee's liability "cash-to-cash" cycle? 4. Using your answers from 2 and 3. abuve. determine the number of days that the firm may need to finance itself daring the cash-to-cast cycle. How can this number be used to determine the amount ot cxlemal financing necessary? 5. What types of external funding sourees are appropriate for supporting a workiog capital deficit of the lyoe that is described in Mr. MeGhee's memo? Why are some sources more appropriate than others? 6. What are some ways that McGihee could make the asset cash-to-casi cycle shorter? 7. What are some ways that McGhee could make the liability cash-to-cash cycle longer? 8. What considerations would need to be ruade when ehanging the company's terms ot receivables, and changing policies on other current assets or liabilities? What complications and of ditficalties has Mr. McGhee left out of tis memo? For as long as he could remember, Calvin MeGince had etjoyed long car trips hs a child he had spent summers travelling with his family, by car, to most parts of the Unitst Srates. To him, road trips were the most fun one could have, espectally if you cauli stop glong the way and enjoy the sights. Not surprisingly. Calvin became a long-haul irucker atter ooliege. It mid goad hages and had the advantage of allowang him to see the country tom the sab of his truck. He couldn't do any sightseeing this way. of course, but he fipured that there was always time for that later. Six years of apen road trucking took its toll, towever, and Calvin was thed of the kag hours and poor working conditions. As he became more and more discontent whih the trucking industry, he started to look for ways to use his knowled ge to start a basiness of his own Calvin founded McGhee Corporation in the late 19805. McGhee specialized in "jobber" sales at truck stops and travel centers across the US. and Canada. "Rack jobbers" came in and stocked one part of the store, maiaising nventocy and keeping track of consumer interests and popular products. In meny cases, these tems were the only shopping opportunity that truckers had during the week. Calvis hab been able to start small by capitalizing on his know ledge of the trucker lifestyle and the reeds of those on the toad. Initially, he contracted for sheit space at truck stops in his regon and filed that space with wholesale goods he found at closeout saies and business auctions. Truckers hist responded by snapping up the toys, books and small appliances that Calvin thought would be appreciated. Within two vears Caivin had hired a dozen other employees oa tels with his routes, and after another two vears he needed dozens mone In atdikon, to had Found onays w boutes, and aliet anohher iwo years he aeeded doeens mose ln shakik, herted goods and keep his inventory oonsistent acros; the countr: By the end of 2003 , McGhec Corporation had become ore of the largest jobters in the GET YOUR MOTOR RUNNING US. The firm sponsored many products for import, with its own briad barks, and had successfully offered lnternet ordering only a year betore The conpaty sold cvenihing trom 135 seetions in thousands of locations across the country. Finally. Colvin MeGhee the ght he would be able to take the tume to travel and be a tourist agaim. In order for Calvin to do this, however, it was necessary for him to spend less and iens time in the office. To this ead, he had spent time the previous yeas hiring and trainitge a rew assistant and teaching her the intricacies of the rack jobber husiness, Sheryl Plath was juss 2 few montis out of school and trying as hard as she could to leam everything neou. MeGince and his wusiness. Mr. McGhee had placed a great deal of laith in her, and at was abvious that he planned to pat at least part of the future of his company in her hands. THE CASH-TO-CASH CVCLE Calvin had challenged Mc. Path using a series of exenctses involvitg the formis accounting numbers. This week, the lesson was in the areat of working capital manzeenent! In addition to her regular tasks, Sheryl was expected to wors on this problem and present her tindings to Mr. McGihee at the end of the week. Calvia had prepared a Galance stect rexhibit 1) and some additional infotmation atoot the firm's cost struetire (Extribit 2i. Bost statements were based upon 365 days in the fim's fiscal year. Exhibit 1. MeGhee Corporation. Balance Sheet, December 31, 2003. whit 2. Selected 1ncome Statement Information, December 31,20013 . working through the difference between the cesin-ti-cash cycle for sssels and she cycce for so much credit from our suppliers," he reminded her he gave horswing "We can only ga and its importance (Exhibit 3). As he left for another road trip. Calvin smied and remindos Sheryl that "evey minus: you spend with this finance stuff now is twenty minutes saved later an' He would bs becs on Feiday afternoon, and they could talk about the fim's working dapital then. Exhibit 3. Memo Regarding Firm's Cash Cycle: 12/31:03. Sheryl: The usual thing to worry about is the difference between sssets ard liabinice If assets convert to cash faster than liabilties, that's a good thing but fints a rery unusual situation. More aften, your liabilities will te "oue, essertially betome your reccivables have come in fully. Cast sales, when they actualy harpen. will selp shorten the asset cash-to-cash cycle and make your job caser - "e math have significant cash sales, as you've probably leaned in the psst tew monns. To figure out how the assets and liabilities work rogether on thas, you ineed oo 'ne some numbers in front of you. In particular. You'll want to know what out werbe daily sales and cost of goods sold are, and what our average purchases are Finzly, th would be useful to know eur average daily operating experses, too Once you have all of that stufi, convert the balance sleat inta its daily equivalen: For example: part of the asset cash-to-cash cycle is the daily fevel af cahh on hrat You can find this by dividing the cash amount on the balance sheet by the averagdaily sales figure to get "days cash" Accounts reveivabie is alsa dirotly, relaed to our sales ligures, but when looking at average invertory be sure ta cucsider our dally COGS instead. On the other side of the balance sheet, gayabies are clazely telated te average daily purchases and acenials are related to operating experies. The asset cash-to-tain eycle is the conibination of the "days cash," the simil 2t measure for accounts recuisbic. and the inventory "days" "This is rougily how long it takes is to conten a saic inte cash, on average. For the liabillies, we lonk at days payable" and "days accruak" as mentioned These tho numbers teil as low nuch wes rely upon suppliets and employees for credit, and added together give us the number ol days an the liability east-or-cast cycie. The difference between the total days in the asset eycle and the total days in the liability cycte is the number of days' worh of financing we li nee durine the periad When used with our daily COGS number. it can lell us how mach bonk finarcing as wight need during that time If nothing else, it provides a rough estimate lor using when w e plan for a new year. and it helps us evaluate the rest of nur working capital. REQUIRED 1. Using the information in Exhibits I and 2. calculate McGhee's average daily saies, average dally cost of goods sold. uverage daily purclases. and average operating expenses. How much control does the firm have over each of these items? 2. Convert the assel portion of the tion's balance shect in Exhibit I iato its daily ecuivaler:. How many days does the firm have sn its asset "cash-to-cash" eycle? 3. Convert the shot-term liabilities on the balance sheet into their daily equialents. Hon many days are in MeGhee's liability "cash-to-cash" cycle? 4. Using your answers from 2 and 3. abuve. determine the number of days that the firm may need to finance itself daring the cash-to-cast cycle. How can this number be used to determine the amount ot cxlemal financing necessary? 5. What types of external funding sourees are appropriate for supporting a workiog capital deficit of the lyoe that is described in Mr. MeGhee's memo? Why are some sources more appropriate than others? 6. What are some ways that McGihee could make the asset cash-to-casi cycle shorter? 7. What are some ways that McGhee could make the liability cash-to-cash cycle longer? 8. What considerations would need to be ruade when ehanging the company's terms ot receivables, and changing policies on other current assets or liabilities? What complications and of ditficalties has Mr. McGhee left out of tis memo