1 The following has been extracted from the financial statements of Rowett: Statement of profit or loss extracts 000 Revenue 000 12,000 Cost of sales: Raw materials Labour 5,800 3,060 8,860 Gross profit Administration/distribution Profit before interest and tax 3,140 1,680 1,460 Financial position statement extracts 000 000 Current assets: Inventory of raw materials 1,634 Inventories of finished goods. 2,018 Trade receivables 1,538 Cash and bank 500 5,690 Current liabilities: Trade payables Overdraft Other expenses 1,092 300 76 1,468 Powell, a factoring company, has offered to take over Rowett's debt administration and credit control on a non-recourse basis for an annual fee of 2 per cent of sales. This would save Rowett 160,000 per year in administration costs and reduce bad debts from 0.5 per cent of sales to nil. Powell would reduce trade receivables days to 40 days and would advance 75 per cent of invoiced debts at an interest rate of 10 per cent. Rowett finances working capital from an overdraft at 8 per cent. (a). Calculate the length of Rowet's cash conversion cycle and discuss it significance to the company. (12marks) (b). Using the information given, assess whether Rowett should accept the factoring service offered by Powell. What use should the company make of any finance provided by the factor? (13 marks)