Given the following information on Company X: Annual Cost of goods sold = $16,000,000 Annual...
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Finance
Given the following information on Company X:
Annual Cost of goods sold = $16,000,000
Annual Credit Sales = $20,000,000
Average Inventory = $3,200,000
Average Accounts Receivable = $657,534
Average Accounts Payable = $657,534
Number of days per year = 365
a. Calculate the cash conversion cycle.
b. Suppose the company wants to improve its cash conversion cycle by reducing the inventory conversion period by 8 days, reducing the receivables collection period by 1 day, and increasing the payable deferral period by 1 day. Calculate the inventory, accounts receivable and accounts payable as a result of this improvement in the cash conversion cycle.
c. Given the improvement in cash conversion cycle in part (b), calculate the reduction in the net operating working capital. Interpret your answer in terms of improvement to the companys free cash flows.
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