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A new computer system allows your firm to more accurately monitor inventory and anticipate future inventory shortfalls. As a result, the firm feels more able to pare down its inventory levels. What effect will the new system have on working capital and on the cash conversion cycle?

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Solution Summary

The expert examines the working capital and cash conversion cycles.

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Working Capital = Current Assets - Current Liabilities
Cash Conversion Cycle = AR Days + Inventory Days - Payable Days

Due to the new system, ...

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