World Class Corp. produces Bike batteries. World Class turns out 1,500 batteries a day at a cost of $6 per battery for materials and labor. It takes the firm 22 days to convert raw materials into a battery. Pretonpino allows its customers 40 days in which to pay for the batteries, and the firm generally pays its suppliers in 30 days.
a- what is the length of World Class's cash conversion Bike?
b- At a steady state in which World Class produces 1,500 batteries a day, what amount of working capital must it finance?
c- by what amount could World Class reduce its working capital financing needs if it was able to stretch its payables deferral period to 35 days?
d- World Class management is trying to analyze the effect of a proposed new production process on its working capital investment. The new production process would allow Prestonpino to decrease its inventory conversion period to 20 days and to increase its daily production to 1800 batteries. However the new process would cause the cost of materials and labor to increase to $7. Assuming the change does not affect the average collection period (40 days) or the payables deferral period (30 Days), what will be the length of its cash conversion Bike and its working capital financing requirements if the new production process its implemented?