Case Scenario: WORKING CAPITAL AND CURRENT ASSETS MANAGEMENT
Problem I: ABC Manufacturing has an average inventory age of 80 days, an average collection period of 70 days and an average payment period of 60 days.
a) Calculate the firm's cash conversion cycle
b) Calculate the firm's cash turnover, or frequency of its cash conversion cycle in a year (assuming a 365-day year)
c) Should the firm try to minimise or maximise the cash conversion cycle and cash turnover? Why?
Problem II: Leopard Corporation purchases 600,000 units per year of one component. The fixed cost per order is $12.5. The annual carrying cost of the item is 27% of its $1cost.
Determine the EOQ if:
a) No changes
b) Order cost of zero
c) Carrying cost of zero
What do your answers illustrate about the EOQ model? Explain.