Multiple changes in cash conversion cycle Garrett Industries turns over its inventory 7 times each year, it has an average collection period of 42 days and an average payment period of 26 days. The firm's annual sales are $2.7 million. Assume there is no difference in the investment per dollar of sales in inventory, receivables, and payables; and a 365-day year. a. Calculate the firm's cash conversion cycle, its daily cash operating expenditure, and the amount of resources needed to support its cash conversion cycle. b. Find the firm's cash conversion cycle and resource investment requirement if it makes the following changes simultaneously. (1) Shortens the average age of inventory by 7 days. (2) Speeds the collection of accounts receivable by an average of 12 days. (3) Extends the average payment period by 12 days. c. If the firm pays 11% for its resource investment, by how much, if anything, could it increase its annual profit as a result of the changes in part b? d. If the annual cost of achieving the profit in part c is $33,000, what action would you recommend to the firm? Why? a. The firm's cash conversion cycle, CCC, is days. (Round to the nearest whole day.) The firm's daily cash operating expenditure is $. (Round to the nearest dollar.) The amount of resources needed to support the firm's cash conversion cycle is $. (Round to the nearest dollar.) b. Find the firm's cash conversion cycle and resource investment requirement if it makes the following changes simultaneously. (1) Shortens the average age of inventory by 7 days. (2) Speeds the collection of accounts receivable by an average of 12 days. (3) Extends the average payment period by 12 days. The new cash conversion cycle, CCC, days. (Round to the nearest whole day.) The new amount of resources needed to support the firm's cash conversion cycle is $. (Round to the nearest dollar.) c. If the firm pays 11% for its resource investment, it could increase its annual profit as a result of the changes in part b by $(Round to the nearest dollar.) d. If the annual cost of achieving the profit in part c is $33,000, what action would you recommend to the firm? Why? (Select the best answer below.) O A. The firm should accept the proposed changes because the increase in profits are less than the additional costs. OB. The firm should accept the proposed changes because the increase in profits exceeds the additional costs. OC. The firm should reject the proposed changes because the increase in profits exceeds the additional costs. OD. The firm should reject the proposed changes because the additional costs exceed the increase profits
