Question
(Calculating the cash conversion cycle)Network Solutions just introduced a new, fully automated manufacturing plant that produces 1,500 wireless routers per day with materials costs of
(Calculating the cash conversion cycle)Network Solutions just introduced a new, fully automated manufacturing plant that produces 1,500 wireless routers per day with materials costs of $45 per router and no other costs. The average number of days a router is held in inventory before being sold is 55 days. In addition, they generally pay their suppliers in 16 days, while collecting from their customers after 19 days.
a.What is the cash conversion cycle?
b.What would happen to the cash conversion cycle if they could stretch their payments to suppliers from 16 days to 36 days?
c.How much would working capital be reduced if they stretched their payments to suppliers from 16 days to 36 days?
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