Cash Conversion Cycle

Harvey Industries turns over its inventory eight times each year; it has an average collection period of 40 days and an average payment period of 30 days. The firms annual sales are $4 million. Cost of goods sold is 75% of sales. Assume a 365-day year.

1. Calculate the firms cash conversion cycle, its daily cash operating expenditure, and the amount of resources needed to support its cash conversion cycle.

1. Find the firms cash conversion cycle and resource investment if it makes the following changes simultaneously:
   1. Shortens the average age of inventory by 5days.
   2. Speeds the collection of accounts receivable by an average of 10 days.
   3. Extends the average payment period by 10 days.

1. If the firm pays 12% for its resource investment, by how much, if anything, could it increase its annual profit as a result of the changes in part b?

If the annual cost of achieving the profit in part c is $35,000, what action would you recommend to the firm? Why?

Please show work and formulas used. Thank you!