Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Multiple changes in cash conversion cycle Garrett Industries turns over its inventory 6 times each year, it has an average collection period of 37 days

image text in transcribed
Multiple changes in cash conversion cycle Garrett Industries turns over its inventory 6 times each year, it has an average collection period of 37 days and an average payment period of 34 days. The firm's annual sales are $2.5 million. Assume there is no difference in the investment per dollar of sales in inventory, receivables, and payables; and a 365-day year 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 3 days (2) Speeds the collection of accounts receivable by an average of 10 days (3) Extends the average payment period by 10 days. c. If the firm pays 16% 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 $34,000, what action would you recommend to the firm? Why

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Enterprise Risk Management In Finance

Authors: David L. Olson, Desheng Dash Wu

1st Edition

1349691038, 978-1349691036

More Books

Students also viewed these Finance questions

Question

How has the competition changed within the last three years?

Answered: 1 week ago

Question

What lessons can be learned from such cases?

Answered: 1 week ago