What will be the working capital financing requirement

Reference no: EM13287159

Oliver Corporation produces motorcycle batteries.

Oliver turns out 1,500 batteries a day at a cost of $5 per battery for materials and labor. It takes the firm 24 days to convert raw materials into a battery. Oliver allows its customers 40 days in which to pay for the batteries, and the firm generally pays its suppliers in 30 days. Assume 365 days in year for your calculations. At a steady state in which Oliver produces 1,500 batteries a day, at the amount of $255,000 working capital.

Oliver'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 Oliver to decrease its inventory conversion period to 15 days and to increase its daily production to 2,000 batteries.

However, the new process would cause the cost of materials and labor to increase to $11. Assuming the change does not affect the average collection period (40 days) or the payables deferral period (30 days), what will be the working capital financing requirement if the new production process is implemented? Round your answers to two decimal places.

Reference no: EM13287159

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