Ramanujam Ltd.is a leading producer of ayurveda based fitness suppliments. It was started in the year 2005 and is expanding rapidly in India and abroad.As part of its overall policy evaluation, the finance manager is looking at the efficiency of working capital management.

Ramanujam Ltd.is a leading producer of ayurveda based fitness suppliments. It was started in the year 2005 and is expanding rapidly in India and abroad.As part of its overall policy evaluation, the finance manager is looking at the efficiency of working capital management. The company has annual sales of 36,500,000, or 100,000 a day on a 365-day basis. The firm's cost of goods sold is 75% of sales. On average, the company has 9,000,000 in inventory and 8,000,000 in accounts receivable. The firm is looking for ways to shorten its cash conversion cycle. Its CFO has proposed new policies that would result in a 20% reduction in both average inventories and accounts receivable. She also anticipates that these policies would reduce sales by 10%, while the payables deferral period would remain unchanged at 35 days.

a. Compute existing cash conversion cycle of the firm. b. Compute new cash conversion cycle, if the CFO's proposed new policies are accepted. c. Comment on the pros and cons of the new policy proposed by the CFO.