Question
Dashboard Control Inc. sells software that controls your car so you can drive peacefully. The company is analyzing the performance of its cash managment department.
Dashboard Control Inc. sells software that controls your car so you can drive peacefully. The company is analyzing the performance of its cash managment department. The firm has inventory which turns 7.2 times per year, an average payment period of 40 days, and an average collection period of 60 days. The firm's total annual outlays are $2,500,000 (Assume a 360-day year).
a) Calculate the firm's operating and cash conversion cycles.
b) Calculate the amount of resources needed to support the firm's cash conversion cycle.
c) The firm is considering speeding the collection of accounts receivable by using electronic payment system. The electronic payment system would reduce the average collection period by four days and cost $2,000 per year in fees. If the firm can earn 9% on its short-term investments, what recommendation would you make to the firm regarding the electronic payment system?
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