CDL Corporation produces motorcycle batteries. CDL turns out 1,500 batteries a d

Question

CDL Corporation produces motorcycle batteries. CDL 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. CDL 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.

What is the length of CDL cash conversion cycle? Round your answer to two
decimal places.

1. 34 Days CORRECT

At a steady state in which CDL produces 1,500 batteries a day, what amount of
working capital must it finance? Round your answer to the nearest cent.

2. $255,000 CORRECT

By what amount could CDL reduce its working capital financing needs if it was able
to stretch its payables deferral period to 36 days? Round your answer to the nearest cent.

3. $45,000 CORRECT

CDL management is trying to analyze the effect of a proposed new production process on its working capital investment. The new production process would allow CDL 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 length of its cash conversion cycle and its working capital financing requirement if the new production process is implemented? Round your answers to two decimal places.
Cash conversion cycle 25 Days CORRECT
Working capital financing $______________

Explanation / Answer

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