Columbus Corp. has annual sales of $80, 000, 000; its average inventory is $20, 000, 000; and its average accounts receivable is $16,000,000. The firm buys all raw materials on terms of net 35 days payable deferral with $150,000 cost of the good sold per day. The firm is searching for ways to shorten the cash conversion cycle. If inventory conversion can be lowered to 80 days and average collection period can be reduced to 65 days while payable deferral is increased by 5 days, cost of the good sold, and annual sales remain constant, how much is the increase in firm's free cash flow?

Columbus Corp. has annual sales of $80, 000, 000; its average inventory is $20, 000, 000; and its average accounts receivable is $16,000,000. The firm buys all raw materials on terms of net 35 days payable deferral with $150,000 cost of the good sold per day. The firm is searching for ways to shorten the cash conversion cycle. If inventory conversion can be lowered to 80 days and average collection period can be reduced to 65 days while payable deferral is increased by 5 days, cost of the good sold, and annual sales remain constant, how much is the increase in firm's free cash flow?

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter16: Supply Chains And Working Capital Management

Section: Chapter Questions

Problem 11P

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