Casa de Diserion case

a. OC= average age of inventories + Average collection period
110+75= 185 days

Cash conversion cycle= operating cycle –average payment period
= 185-30= 155 days

Resources needed= Annual OC Investment x CCC 365
=2650000 X 155 365
= 1125324.66

b. Operating cycle= Avg. age of inventories + Avg. collection period
= 83+ 75
=158 days

Cash conversion = operating cycle – avg. payment period
= 158days- 39 days
= 119 days

Resources needed= operating cycle investment X Cash conversion 365
= 26500000 X 119 days 365
= $8639726.03

c. Resources needed: $11,253,424.66
Less: Industry resources needed: $8,639,726.03
Additional resources needed: $2,613,698.63
Annual interest: 15%
Cost of Operational inefficiency: $2,613,698.63 X 15% = $392,054.79

d. Credit terms 3/10 net 60
=Collection period X current avg. collection period (1-% reduction in avg. collection period)
=75days X (1-.40) =45 days

OC= Avg. age of inventories + Avg. collection period = 83+45 = 128 days

CCC= operating cycle + Avg. payment period = 128 -39 =89 days

Resources needed=Annual operating cycle investment X CCC 365 = 265000000 X 89 days 365 = $6,461,643.84

Additional savings= Industrial resource needed – firm resource needed X Annual interest rate = 8639726.03- 6461643.84 X 15% = 217082.19 X 15% = $326712.33
Reduction in annual sales= annual credit sales X cash discount X discount rate =40000000 X 45% X 3% = $540000

Avg. investment Account receivable= total