FINANCIAL MANAGEMENT

ANSWER ALL THE QUESTIONS

Question 7 Due to the current economic climate in South Africa, a certain manufacturing firm is trying to improve its cash flow. The firm decided to update its policies as follows: Description Current credit policy Receivables 30 days Payables 30 days Inventory turnover 45 days New credit policy 21 days 45 days 30 days Difference - 9 days + 15 days - 15 days Required 7.1 State the formula for the cash conversion cycle (CCC). (1 Mark) 7.2 Calculate the cash conversion cycle (CCC) of the firm under the current credit policy. (2 Marks) 7.3 Calculate the cash conversion cycle (CCC) of the firm under the new credit policy. (2 Marks) 7.4 For each of the following accounts, provide the basic cash implication of the new credit policy: 7.4.1 Receivables (2 Marks) 7.4.2 Payables (1 Mark) 7.4.3 Inventory (2 Marks)