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A firm is considering the following changes: increasing inventory variety which will increase average inventory by $10,000, and offering more liberal sales terms which will result in average receivables increasing to $65,000.

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A firm is considering the following changes: increasing inventory variety which will increase average inventory by $10,000, and offering more liberal sales terms which will result in average receivables increasing to $65,000. These actions are expected to increase sales to $800,000 per year, and cost of goods will remain at 75%. Because of the increased purchases, average payables will increase to $35,000. What effect will these changes have on the cash conversion cycle?

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Manal Elkhoshkhany, MBA
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  • MBA, California State University, Sacramento
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