argetis Inc. carries an average inventory of $750,000. Its annual sales are $10 million, its cost of goods sold are 75% of annual sales, and its receivables collection period is twice as long as its inventory conversion period. The firm buys on terms of net 30 days, and it pays on time. Its new CFO wants to decrease the cash conversion cycle by 18 days, based on a 365-day year. He believes he can reduce the average inventory to $605,885 with no effect on sales. By how much must the firm also reduce its accounts receivable to meet its goal in the reduction of its cash conversion cycle? Please explain the process and show calculations.
argetis Inc. carries an average inventory of $750,000. Its annual sales are $10 million, its cost of goods sold are 75% of annual sales, and its receivables collection period is twice as long as its inventory conversion period. The firm buys on terms of net 30 days, and it pays on time. Its new CFO wants to decrease the cash conversion cycle by 18 days, based on a 365-day year. He believes he can reduce the average inventory to $605,885 with no effect on sales. By how much must the firm also reduce its accounts receivable to meet its goal in the reduction of its cash conversion cycle? Please explain the process and show calculations.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Margetis Inc. carries an average inventory of $750,000. Its annual sales are $10 million, its cost of goods sold are 75% of annual sales, and its receivables collection period is twice as long as its inventory conversion period. The firm buys on terms of net 30 days, and it pays on time. Its new CFO wants to decrease the cash conversion cycle by 18 days, based on a 365-day year. He believes he can reduce the average inventory to $605,885 with no effect on sales. By how much must the firm also reduce its accounts receivable to meet its goal in the reduction of its cash conversion cycle?
Please explain the process and show calculations.
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