Answer a.
Average Inventory Period = 365 / Inventory Turnover
Average Inventory Period = 365 / 5
Average Inventory Period = 73 days
Operating Cycle = Average Collection Period + Average Inventory
Period
Operating Cycle = 51 + 73
Operating Cycle = 124 days
Cash Conversion Cycle = Operating Cycle - Average Payment
Period
Cash Conversion Cycle = 124 - 30
Cash Conversion Cycle = 94 days
Answer b.
Inventory Turnover = Cost of Goods Sold / Average
Inventory
5 = $2,200,000 / Average Inventory
Average Inventory = $440,000
Answer c.
If average inventory period is 73 days:
Average Inventory Period = 365 * Average Inventory / Cost of
Goods Sold
73 = 365 * Average Inventory / $2,200,000
Average Inventory = $440,000
If average inventory period is 63 days:
Average Inventory Period = 365 * Average Inventory / Cost of
Goods Sold
63 = 365 * Average Inventory / $2,200,000
Average Inventory = $379,726.03
So, investment in net working capital would decrease by $60,273.97 ($440,000 - $379,726.03)
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