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    tammyw15's Avatar
    tammyw15 Posts: 2, Reputation: 1
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    #1

    Apr 19, 2009, 07:18 PM
    Cash Conversion Cycle
    Hardwood Inc. carries an average inventory of $1,000,000. Its annual sales are $10 million, and its receivables conversion period is twice as long as its inventory conversion period. The firm buys on terms of net 30 days and it pays on time. Its new CFO wants to discuss the cash conversion cycle by 10 days, based on a 365-day year. He believes he can reduce the average inventory to $863,000 with no affect on sales. By how much must the firm also reduce its accounts receivable to meet its goal of a 10-day reduction in the cash conversion cycle:

    a. $0
    b. $101,900
    c. $136,986
    d. $333,520
    e. $1,000,000
    basit11519's Avatar
    basit11519 Posts: 2, Reputation: 1
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    #2

    Dec 21, 2009, 03:40 AM
    The answer is (C) 136,986
    basit11519's Avatar
    basit11519 Posts: 2, Reputation: 1
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    #3

    Dec 21, 2009, 03:46 AM

    reduction in resources investment = 10 * 10M/365 = 273,972

    knowing that the invenotry reduced by 137,000 therefore the acount receviable will be 273,972-137,00= 136,972 approximatly similar to 136,986
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