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How much is the total cost the company will incur

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Reference no: EM132512313

Question 1: A firm has arranged for a lockbox system to reduce collection time of accounts receivable. Currently the firm has an average collection period of 43 days, an average age of inventory of 50 days, and an average payment period of 10 days. The lockbox system will reduce the average collection period by 3 days by reducing processing, mail, and clearing float. The firm's cash conversion cycle

A) increases by 3 days.

B) decreases by 3 days.

C) will not change.

D) is 93 days.

Question 2: AA Inc. has a total annual cash requirement of P9,075,000 which are to be paid uniformly. AA has the opportunity to invest the money at 24% per annum. The Company spends, on the average, P40 for every cash conversion on marketable securities.

1. What is the optimal cash conversion size?

2. How much is the total cost the Company will incur?

Reference no: EM132512313

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