o a. Assuming a constant rate for purchases, production, and sales throughout the year, what are Casa de Diseno existing operating cycle (OC), cash conversion cycle (CCC), and resource investment need?
o b. If Leal can optimize Casa de Diseno s operations according to industry standards, what will Casa de Diseno s operating cycle (OC), cash conversion cycle (CCC), and resource investment need to be under these more efficient conditions?
o c. In terms of resource investment requirements, what is the cost of Casa de Diseno operational inefficiency?
o d. (1) If in addition to achieving industry standards for payables and inventory, the firm can reduce the average collection period by offering credit terms of 3/10 net 60, what additional savings in resource investment costs will result from the shortened cash conversion cycle, assuming that the level of sales remain constant?
o d. (2) If the firm s sales (all on credit) are $40,000,000 and 45% of the customers are expected to take the cash discount, by how much will the firm s annual revenues be reduced as a result of the discount?
o d. (3) If the firm s variable cost of the $40,000,000 in sales is 80%, determine the reduction in the average investment in accounts receivable and the annual savings that will result from this reduced investment, assuming that sales remain constant.
o d. (4) If the firm s bad-debts expenses decline from 2% to 1.5% of sales, what annual savings will result, assuming that sales remain constant?
o d. (5) Use your findings in parts (2) through (4) to assess whether offering the cash discount can be justified financially. Explain why or why not.
o e. On the basis of your analysis in parts a. through d. what recommendations would you offer Teresa Leal?
o f. Review for Teresa Leal the key sources of short-term financing, other than accounts payable, that she may consider to finance Casa de Diseno s resource investment need calculated in part b. Be sure to mention both unsecured and secured sources.
