Question
Lumbus Corp. has annual sales of $80,000,000; its average inventory is $20,000,000; and its average accounts receivable is $16,000,000. The firm buys all raw materials
Lumbus Corp. has annual sales of $80,000,000; its average inventory is $20,000,000; and its average accounts receivable is $16,000,000. The firm buys all raw materials on terms of net 35 days payable deferral with $150,000 cost of the good sold per day. The firm is searching for ways to shorten the cash conversion cycle. If inventory conversion can be lowered to 80 days and average collection period can be reduced to 65 days while payable deferral is lowered by 2 days, cost of the good sold, and annual sales remain constant, how much is the increase in firms free cash flow?
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