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Q4 (a) AGZ Industries turns over its inventory eight times each year, it has an average collection period of 45 days and an average payment
Q4 (a) AGZ Industries turns over its inventory eight times each year, it has an average collection period of 45 days and an average payment period of 30 days. The firm's annual sales are RM5 million. Assume there is no difference in the investment per dollar of sales in inventory, receivables, and payables; and assume a 365 day year. The current cash conversion cycle is 67 days. During the year, the firm makes the following changes simultaneously: Shortens the average age of inventory by 10 days. Speeds the collection of accounts receivable by an average of 8 days. Extends the average payment period by 10 days. Based on the information above, (i) Calculate the new cash conversion cycle based on the changes. (8 marks) Describe the effect of shortening the cash conversion cycle. (4 marks) (b) Discuss the THREE (3) main advantages of cash concentration. (9 marks)
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