Network Solutions just introduced a new, fully automated manufacturing plant that produces 2,000 wireless routers per day with materials costs of $40 per router and no other costs. The average number of days a router is held in inventory before being sold is 67 days. In addition, they generally pay their suppliers in 12 days, while collecting from their customers after 21 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 12 days to 32 days?
c. How much would working capital be reduced if they stretched their payments to suppliers from 12 days to 32 days?