Answer:
The answer is d. -32 days.
Explanation:
<u>*The before change cash conversion cycle</u> = Days of inventory outstanding + Days of receivables outstanding - Days of payable outstanding.
in which:
Days of inventory outstanding = Average inventory / Cost of good sold x 365 = ( 15,012,000 / ( 68,735,000 x 0.85) ) x 365 = 94 days
Days of receivables outstanding = Average Receivables / Revenue x 365 = ( 10,008,000 / 68,735,000 x 365 = 53 days
Days of payable = 30 days
=> Before change cash conversion cycle = 117 days.
* <u>The after-change cash conversion cycle</u> is calculated with the same formula, however with estimated changes be applied in the formula as followed:
Days of inventory outstanding = Average inventory / Cost of good sold x 365 = ( (15,012,000 - 1,946,000) / ( 68,735,000 x 0.85) ) x 365 = 82 days
Days of receivables outstanding = Average Receivables / Revenue x 365 = ( (10,008,000 - 1,946,000) / 68,735,000 x 365 = 43 days
Days of payable = 40 days
=> After-change cash conversion cycle = 82 + 43 - 40 = 85 days
<u>=> Net change is 85 - 117 = -32 days</u>
