Solve this problem Oliver Corporation produces sports batteries. Oliver turns out 1,500batteries a day at a cost of $5 per battery for materials and labor. Ittakes the firm 24 days to convert raw materials into a battery. Oliverallows its customers 40 days in which to pay for the batteries, andthe firm generally pays its suppliers in 30 days. Assume 365 days inyear for calculations. The length of Oliver's cash conversion cycleis 34 days. At a steady state in which Oliver produces 1,500batteries a day, at the amount of $255,000 working capital.Oliver's management is trying to analyze the effect of a proposednew production process on its working capital investment. The newproduction process would allow Oliver to decrease its inventoryconversion period to 15 days and to increase its daily production to2,000 batteries.However, the new process would cause the cost of materials andlabor to increase to $11. Assuming the change does not affect theaverage collection period (40 days) or the payables deferral period(30 days), what will be the length of its cash conversion cycle andits working capital financing requirement if the new productionprocess is implemented?

Step 1: Define Working CapitalWorking capital represents the difference between the current assets…

Answered: Oliver Corporation produces sports…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 15E: Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided...

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Pasha Corporation produces motorcycle batteries. Pasha turns out 1,400 batteries a day at a cost of $7 per battery for materials and labor. It takes the firm 22 days to convert raw materials into a battery. Pasha 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 Pasha’s cash conversion cycle?b. At a steady state in which Pasha produces 1,400 batteries a day, what amount of working capital must it finance?c. By what amount could Pasha reduce its working capital financing needs if it was able to stretch its payables deferral period to 33 days?d. Pasha’s management is trying to analyze the effect of a proposed new production process on its working capital investment. The new production process would allow Pasha to decrease its inventory conversion period to 17 days and to increase its daily production to 2,400 batteries. However, the new process would cause the cost of materials and labor to…
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Rahim Afrooz is a leading producer of automobile batteries. It turns out 1,500 batteries a day at a cost of Tk. 6 per battery for materials and labor. It takes the firm 22 days to convert raw materials into the battery. It 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 cash conversion cycle? b) If the firm always produces and sales 1,500 batteries a day, what amount of working capital must it finance? c) By what amount would the firm reduce its working capital financing needs if it was able to stretch its payables deferral period to 35 days?
The company bought raw materials on account and then paid for them within 30 days. They used the raw materials to make a product that they sold on account 100 days after the purchase of the raw materials. Their customer paid for the finished good 60 days later. How many days long is the firm's cash conversion cycle?
Altai, Inc has a cash conversion cycle of 175 days. The company is able to stretch its average payment period to 45 days from 30 days. The result is a/an_________ of ____ days in the cash conversion cycle.
Columbus Corp. has annual sales of $80, 000, 000; its average inventory is $20, 000, 000; and its average accounts receivable is $16,000,000. The firm buys all raw materials on terms of net 35 days payable deferral with $150,000 cost of the good sold per day. The firm is searching for ways to shorten the cash conversion cycle. If inventory conversion can be lowered to 80 days and average collection period can be reduced to 65 days while payable deferral is increased by 5 days, cost of the good sold, and annual sales remain constant, how much is the increase in firm's free cash flow?
(Related to Checkpoint 18.2) (Calculating the cash conversion cycle) Network Solutions just introduced a new, fully automated manufacturing plant that produces 2,000 wireless routers per day with materials costs of $45 per router and no other costs. The average number of days a router is held in inventory before being sold is 54 days. In addition, they generally pay their suppliers in 16 days, while collecting from their customers after 27 days. a. What is the cash conversion cycle? b. What would happen to the cash conversion cycle if they could stretch their payments to suppliers from 16 days to 36 days? c. How much would working capital be reduced if they stretched their payments to suppliers from 16 days to 36 days? a. The cash conversion cycle is days. (Round to the nearest whole number.)
Tool Makers, Inc. uses tool and die machines to produce equipment for other firms. The initial cost of one customized tool and die machine is $850,000. This machine costs $10,000 a year to operate. Each machine has a life of 3 years before it is replaced. What is the equivalent annual cost of this machine if the required return is 9%? (Round your answer to whole dollars.)
The ABC Corporation is considering introducing a new product, which will require buying new equipment for a monthly payment of $5,000. Each unit produced can be sold for $20.00. ABC incurs a variable cost of $10.00 per unit. Suppose that ABC would like to realize a monthly profit of $50,000. How many units must they sell each month to realize this profit?
The ABC Corporation is considering introducing a new product, which will require buying new equipment for a monthly payment of $5,000. Each unit produced can be sold for $20.00. ABC incurs a variable cost of $10.00 per unit. How many units must ABC sell each month to break even?
Ranger Corporation is currently selling widgets for $40 at a cost of $20 per unit. Fixed costs are currently $500 and the current production is 100 widgets. What is the Operating Cash Flow at this output level?
Your storage firm has been offered $96,100 in one year to store some goods for one year. Assume your costs are $97,000, payable immediately, and the cost of capital is 8.9%. Should you take the contract? The NPV will be $ (Round to the nearest cent.)

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