Increased Efficiency, Inc. is looking for ways to shorten itscash conversion cycle. It has annual sales of $36,500,000, or$100,000 a day on a 365-day basis. The firm's cost of goods sold is75% of sales. On average, the company has $9,000,000 in inventoryand $8,000,000 in accounts receivable. Its CFO has proposed newpolicies that would result in a 20% reduction in both averageinventories and accounts receivable. She also anticipates thatthese policies would reduce sales by 10%, while the payablesdeferral period would remain unchanged at 40 days. What effectwould these policies have on the company's cash conversioncycle?
