Columbus Corp. has annual sales of $80, 000, 000; its average inventory is $20, 000, 000; and its average accounts receivable is $16,000,000. The firm buys all raw materials on terms of net 35 days payable deferral with $150,000 cost of the good sold per day. The firm is searching for ways to shorten the cash conversion cycle. If inventory conversion can be lowered to 80 days and average collection period can be reduced to 65 days while payable deferral is increased by 5 days, cost of the good sold, and annual sales remain constant, how much is the increase in firm's free cash flow?

Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter21: Supply Chains And Working Capital Management
Section: Chapter Questions
Problem 11P: Negus Enterprises has an inventory conversion period of 50 days, an average collection period of 35...
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Columbus Corp. has annual sales of $80, 000, 000; its average inventory is $20, 000, 000; and its average accounts receivable is $16,000,000. The firm buys all raw materials on terms of net 35 days payable deferral with $150,000 cost of the good sold per day. The firm is searching for ways to shorten the cash conversion cycle. If inventory conversion can be lowered to 80 days and average collection period can be reduced to 65 days while payable deferral is increased by 5 days, cost of the good sold, and annual sales remain constant, how much is the increase in firm's free cash flow?

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