Find the length of prestopinos cash conversion cycle

Reference no: EM1345246

Prestopino turns out 1,500 batteries a day at a cost of $6 per battery for materials and labor. It takes the firm 22 days to convert raw materials into a battery. Prestopino allows its customers 40 days in which to pay for the batteries, and the firm generally pays its suppliers in 30 days.

a. What is the length of Prestopino's cash conversion cycle?

b. At a steady state in which Prestopino produces 1,500 batteries a day, what amount of working capital must it finance?

c. By what amount could Prestopino reduce its working capital financing needs if it was able to stretch its payables deferral period to 35 days?

d. Prestopino's management is trying to analyze the effect of a proposed new production process on its working capital investment. The new production process would allow Prestopino to decrease its inventory conversion period to 20 days and to increase its daily production to 1,800 batteries. However, the new process would cause the cost of materials and labor to increase to $7. Assuming the change does not affect the average collection period (40 days) or the payables deferral period (30 days), what will be the length of its cash conversion cycle and its working capital financing requirement if the new production process is implemented?

Reference no: EM1345246

Questions Cloud

What effect will purchase have on illinghams cash flows : Explain what effect will the purchase of the CX700 have on Illingham's net income over the next 10 years and what effect will the purchase have on Illingham's cash flows?

Element must be expanded upon to include more detail : Each SWOT element must be expanded upon to include more detail/rationale as to why it is listed in the category that it is

Hedge the firm from interest rate risk : When interest rates increase, what happens to the cash flows of the firm and what type of swap position would hedge the firm from interest rate risk?

Determine the length of the cash conversion cycle : Explain how many times per year does Zocco turn over its inventory and consider that cost of goods sold is 75% of sales.

Find the length of prestopinos cash conversion cycle : What is the length of Prestopino's cash conversion cycle and at a steady state in which Prestopino produces 1,500 batteries a day, what amount of working capital must it finance?

What impact would a change : Under what circumstances would the risk-free rate change and what impact would a change, higher or lower, have on the cost of debt?

Explain dismissal meeting : Explain Dismissal Meeting, Imagine that you are an office manager as well as you have been tasked with the job of coordinating also heading the dismissal meeting for an employee layoff.

Find the firms marginal tax rate : Firm decides to recapitalize to take advantage of tax shield and firm's marginal tax rate is 40%. After a substantial borrowing, firm's cost of equity goes up to 10%.

Compute the mass of oxygen that has been released : Compute the mass of oxygen that has been released from the tank if the temperature in the tank doesn't change during the process

User Account

All Pages