Task: Cash conversion cycle Problem
Kolan Inc. has annual sales of $36,500,000 ($100,000 a day on a 365-day basis).
On average, the company has $12,000,000 in inventory and $8,000,000 in accounts receivable.
The company is looking for ways to shorten its cash conversion cycle (calculated on a 365-day basis).
Their CFO has proposed new policies which would result in a 20 percent reduction in both average inventories and accounts receivables.
The company anticipates that these policies will also reduce sales by 10 percent.
Accounts payable will remain unchanged.
What effect would these policies have on the company's cash conversion cycle?
a. 40 days shorter
b. 22 days shorter
c. 13 days shorter
d. 22 days longer
e. 40 days longer