Typically the company has only 10 days sales in inventory and 5 days sales in receivables. The company generally can deliver large corporate orders in less than two weeks. Wellcomp's parts suppliers, however, accept payment in 30 days.
At a recent meeting of key executives, Nadine Hunt, senior VP of marketing, proposed dropping prices to grab even more market share. Preston Hunt, the chief operating officer, objected and said, Nadine, our margin is only 5 percent. If we drop our price, our margin drops, and a lower margin means less cash coming into the company. If cash flow drops, we could have a very significant problem.
Required:
Assume the role of Nadine and explain why cash flow is not likely to be a problem.