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Annual sales Cost of goods sold Inventories Accounts receivable Accounts payable $150 $122 $17 $51 $13 INPUTS Days/year Interest rate on NOWC loans (10%) 365 10% a) Using the New Target Conversion Periods, find the reduction in NOWC, increase in FCF and reduction in interest expenses. Assume no change in Sales and COGS. New Targets for Conversion Periods Inventory conversion period (ICP, days) Average collection period (ACP, days) Payable deferral period (PDP, days) Cash Conversion Cycle (CCC, days) Old Actual) New Target 50.9 40.0 124.1 40.0 38.9 50.0 136.1 30.0 Reduction in Cash Conversion Cycle: Impact of Reduction in CCC Annual sales: Costs of goods sold (COGS): Inventory: Receivables: Payables: Net operating working capital: NOWC = Inventory + Receivables - Payables Interest expense due to NOWC: interest rate on NOWC loans *(NOWC) Old (Actual) New Target $150.00 $122.00 $17.00 $51.00 $13.00 Improvement in Selected Results Reduction in NOWC: Increase in free cash flow: Reduction in interest expense: Annual sales Cost of goods sold Inventories Accounts receivable Accounts payable $150 $122 $17 $51 $13 INPUTS Days/year Interest rate on NOWC loans (10%) 365 10% a) Using the New Target Conversion Periods, find the reduction in NOWC, increase in FCF and reduction in interest expenses. Assume no change in Sales and COGS. New Targets for Conversion Periods Inventory conversion period (ICP, days) Average collection period (ACP, days) Payable deferral period (PDP, days) Cash Conversion Cycle (CCC, days) Old Actual) New Target 50.9 40.0 124.1 40.0 38.9 50.0 136.1 30.0 Reduction in Cash Conversion Cycle: Impact of Reduction in CCC Annual sales: Costs of goods sold (COGS): Inventory: Receivables: Payables: Net operating working capital: NOWC = Inventory + Receivables - Payables Interest expense due to NOWC: interest rate on NOWC loans *(NOWC) Old (Actual) New Target $150.00 $122.00 $17.00 $51.00 $13.00 Improvement in Selected Results Reduction in NOWC: Increase in free cash flow: Reduction in interest expense