This is a paper that is focusing on the impacts on operating cycle and cash conversion cycle. The paper also provides additional requirements to use in writing the assignment paper.
Impacts on operating cycle and cash conversion cycle
Based on the case study above, you are to write a report addressing the following key questions:
1. What are the impacts on operating cycle and cash conversion cycle due to the increase in the payment period (i.e., average collection period) from 30 to 60 days? Also, assuming the company is currently selling 100 bikes per day, by how much should the ﬁrm increase or reduce its working capital ﬁnancing to accommodate to this change in average collection period?
2. Based on the forecasted sales, is it possible for DuraBike to achieve the corresponding cash and accounting break-even points? Based on your calculations for each – and from a pure cost management perspective – is the marketing department’s proposal acceptable? Explain.
3. Calculate the weighted average cost of capital of DuraBike using available information (estimate the cost of equity using capital asset pricing model – CAPM).
4. Use Payback, Net-Present Value (NPV). Also, IRR to assess whether the investment in the new machines is warranted (assume a payback cut-off period of 7 years and use DuraBike’s weighted average cost of capital as the discount rate). Also, explain to the BoD the beneﬁts of the NPV vis-a-vis other capital budgeting methodologies.
5. If the market price of the Treasury bonds is currently at $1100 per unit, whereas the stock of XYZ is trading at $10 per share, which investment should DuraBike sell to raise the necessary funds? Explain the reasons behind your decision.
6. Based on the answers to the previous questions, determine whether to endorse the plan suggested by the marketing department to the BoD. Then discuss potential suggestions on how to improve the campaign.
7. Discuss the limitation of the above analyses.
Note: It is highly recommended to use Microsoft Excel to create the charts and tables for ease of calculation and better presentation.
The required word length for this report is 2500 words (plus 10% tolerance).
You are required to use at least ﬁve (5) references for this report including sources such as books, industry-related journals, magazines, company documents and academic journal articles.
Use the report template attached. It should include abstract, introduction, answer for each question (7 in total). Each question to be a bold subtitle, reference, and appendix (if any).
Use the formulas sheet as a guidance to use the proper formulas.
Also, use the 7 sources (Modules) attached. In particular, Modules from 5 to 7.
• Use charts and tables to support the answers and to show the calculations. while assessing the investment, using the different measures; payback, NPV, and IRR.