Hi, We need the ansewr for this problem. The is In Charpter 16 Problem 6. Book:...

Hi,

We need the ansewr for this problem. The is In Charpter 16 Problem 6. Book: Fundamentals of Financial Management 11th Editio.

Working capital investment The Prestopino Corporation produces motorcycle batteries.
Prestopino turns out 1,500 batteries a day at a cost of $6 per battery for materials and
labor. It takes the firm 22 days to convert raw materials into a battery. Prestopino allows
its customers 40 days in which to pay for the batteries, and the firm generally pays its
suppliers in 30 days.
a. What is the length of Prestopino’s cash conversion cycle?
b. At a steady state in which Prestopino produces 1,500 batteries a day, what amount
of working capital must it finance?
c. By what amount could Prestopino reduce its working capital financing needs if it
was able to stretch its payables deferral period to 35 days?
d. Prestopino’s management is trying to analyze the effect of a proposed new
production process on its working capital investment. The new production process
would allow Prestopino to decrease its inventory conversion period to 20 days and
to increase its daily production to 1,800 batteries. However, the new process would
cause the cost of materials and labor to increase to $7. 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?

Expert Solution

jeff jeffy answered 1 year ago

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