Zervos Inc !

 

   

Zervos Inc. had the following data for 2008 (in millions). The new CFO believes (a) that an improved inventory management system could lower the average inventory by $4,000, (b) that improvements in the credit department could reduce receivables by $2,000, and (c) that the purchasing department could negotiate better credit terms and thereby increase accounts payable by $2,000. Furthermore, she thinks that these changes would not affect either sales or the costs of goods sold. If these changes were made, by how many days would the cash conversion cycle be lowered?

 

Original	Revised
Annual sales: unchanged Cost of goods sold: unchanged Average inventory: lowered by $4,000 Average receivables: lowered by $2,000 Average payables: increased by $2,000 Days in year	$110,000 $80,000 $20,000 $16,000 $10,000 365	$110,000 $80,000 $16,000 $14,000 $12,000 365