DJ Inc.'s CFO would like to decrease its cash conversion cycle
by 10 days (based on a 365 day year).
The company carries average inventory of $750,000. Its annual sales
are $10 million, its cost of goods sold
is 75% of annual sales, and its average collection period is twice
as long as its inventory conversion period.
The firm buys on terms of net 30 days, and it pays on time. The CFO
believes he can reduce the average
inventory to $647,260 with no effect on sales. By how much must the
finn also reduce its accounts
receivable to meet its goal in the reduction of the cash conversion
cycle?
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