Multiple changes in cash conversion cycleGarrett Industries turns over its inventory

7

times each year; it has an average collection period of

41

days and an average payment period of

25

days. The firm's annual sales are

$3.3

million. Assume there is no difference in the investment per dollar of sales in inventory, receivables, and payables; and a

365-day

year.a. Calculate 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

4

days.(2) Speeds the collection of accounts receivable by an average of

10

days.(3) Extends the average payment period by

8

days.c.If the firm pays

16%

for its resource investment, by how much, if anything, could it increase its annual profit as a result of the changes in part

b?

d.If the annual cost of achieving the profit in part c is

$34,000,

what action would you recommend to the firm? Why?

Question content area bottom

Part 1

a. The firm's cash conversion cycle, CCC, is

enter your response here

days. (Round to the nearest whole day.)

Part 2

The firm's daily cash operating expenditure is

$enter your response here.

(Round to the nearest dollar.)

Part 3

The amount of resources needed to support the firm's cash conversion cycle is

$enter your response here.

(Round to the nearest dollar.)

Part 4

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

4

days.(2) Speeds the collection of accounts receivable by an average of

10

days.(3) Extends the average payment period by

8

days.

Part 5

The new cash conversion cycle, CCC,

enter your response here

days. (Round to the nearest whole day.)

Part 6

The new amount of resources needed to support the firm's cash conversion cycle is

$enter your response here.

(Round to the nearest dollar.)

Part 7

c.If the firm pays

16%

for its resource investment, it could increase its annual profit as a result of the changes in part b by

$enter your response here.

(Round to the nearest dollar.)

Part 8

d.If the annual cost of achieving the profit in part c is

$34,000,

what action would you recommend to the firm? Why?(Select the best answer below.)

A.

The firm should reject the proposed changes because the increase in profits exceeds the additional costs.

B.

The firm should reject the proposed changes because the additional costs exceed the increase in profits.

C.

The firm should accept the proposed changes because the increase in profits are less than the additional costs.

D.

The firm should accept the proposed changes because the increase in profits exceeds the additional costs.