Effect on Cash Conversion Cycle
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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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Solution Summary
The solution explains the effect on cash conversion cycle of some actions taken by the company.
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The effect on cash conversion cycle is to be seen for each item separately. Cash conversion cycle is Accounts Receivable Days + Inventory Days - Accounts Payable Days
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