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Garrett Industries turns over its inventory 6 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 $ 3 million. Assume there is no difference in the investment per dollar of sales in inventory, receivables, and payables; and a 365 day year.

a- find out 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 5 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 13% for its resource investment, by how much, if anything, could it increase its annual profit as a result of changes in part b?

d- If the annual cost of achieving the profit in part c is $ 35,000, what action would you recommend to the firm ? Why?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M939055

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