Reference no: EM133184647
Question - The Prestipino Corporation is a leading U.S Producer of automobile batteries. Prestipino turns out 1,500 batteries a day at a cost of $6 per battery for materials and labour. It takes the firm 22 days to convert raw materials into a battery. They allow their customers 40 days to pay, and the firm generally pays its suppliers in 30 days.
(a) What is the length of Prestipino's cash conversion cycle?
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(b) At a steady state in which Prestipino produces 1,500 batteries a day, what amount of working capital must it finance?
(c) By what amount could Prestipino reduce its working capital finance needs if it was able to stretch its payable deferral period to 35 days?
(d) Management is trying to analyse the effect of a proposed new production process on the working capital investment. The new production process would allow them 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 labour to increase to $7. Assuming the change does not affect the receivables collection period (40 days) or the payables deferral period (30 days), what will be the length of the cash conversion cycle and the working capital finance requirement if the new production process is implemented?