Answer Happy

You are hired to
provide comments on the working capital management of David
Limited. It is given that the inventory of David Limited is
$100,000 at the beginning of the year, and it is
$140,000 at the end
of the year. The costs of goods sold of the company is 60% of sales
revenue, and the company has sales revenue of $3 million. David
Limited does not offer any sales and trade discount for the
customers, and the company grants a credit period of 30 days to the
customers. David limited would enjoy a 2% discount from its
supplier if the payment is made within 5 days; otherwise, the full
amount must be paid within 30 days of the invoice. The accounts
receivable turnover is 10 times, and the average accounts payable
is $36,000. The targeted inventory period, the targeted operating
cycle, and the targeted cash cycle are at most 30 days, 60 days,
and 50 days respectively.
(5 marks)
Briefly discuss (with not more than 60 words) whether David
Limited could reduce the cash cycle by paying the bills to the
suppliers sooner if this action does not affect the average
collection period and inventory periods.