Problem:

Primrose Corp has $12 million of sales, $3 million of inventories, $4 million of receivables, and $1 million of payables. Its cost of goods sold is 85% of sales, and it finances working capital with bank loans at an 8% rate. Assume 365 days are in year for your calculations. (Do not round intermediate steps. )

Requirement:

Question 1: What is Primrose's cash conversion cycle (CCC)?

Question 2: If Primrose could lower its inventories and receivables by 9% each and increase its payables by 9%, all without affecting sales or cost of goods sold, what would be the new CCC?

Question 3: How much cash would be freed-up?

Note: Provide support for your underlying principle.