Garrett Industries turns over its inventory 6 times each year; it has an average collection period of 45 days and an average payment period of 30 days. The firm's annual sales are $ 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 5 days.
2- Speeds the collection of accounts receivable by an average of 10 days.
3- Extends the average payment period by 10 days.
c- If the firm pays 13% for its resource investment, by how much, if anything, could it increase its annual profit as a result of changes in part b?
d- If the annual cost of achieving the profit in part c is $ 35,000, what action would you recommend to the firm ? Why?