Foxconn makes 11000 iPods a day at a cost of 15 each The pro

Foxconn makes 11,000 iPods a day at a cost of $15 each. The production process takes 13 days, including delivery. Foxconn pays its suppliers on average after 29 days and gets paid by Apple 60 days after delivery.

1. How long is Foxconn\'s cash cycle (in days)?
2. How much working capital must the company finance?
3. If Foxconn could pay its suppliers only after 49 days, how much working capital would it save?

Solution

1-

Foxconn\'s cash cycle

days sales in inventory + accounts receivable collection period - suppliers payment period

13+60-29

44

2-

working capital must the company finance

units produced per day*unit cost*no of days in cash cycle

11000*15*44

7260000

3-

Foxconn\'s New cash cycle

days sales in inventory + accounts receivable collection period - suppliers payment period

13+60-49

24

working capital must the company finance

units produced per day*unit cost*no of days in cash cycle

11000*15*24

3960000

Saving in working capital

7260000-3960000

3300000