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Edison Inc. has annual sales of $36,500,000. 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 (CCC). Its CFO has proposed new policies that would result in a 20% reduction in both average inventory 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. What effect would these policies have on the CCC?

Edison Inc. has annual sales of $36,500,000. 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 (CCC). Its CFO has proposed new policies that would result in a 20% reduction in both average inventory 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. What effect would these policies have on the CCC?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Edison Inc. has annual sales of $36,500,000. 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 (CCC). Its CFO has proposed new policies that would result in a 20% reduction in both average inventory 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. What effect would these policies have on the CCC?

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