1. The problem asks to analyze Guardrail PLC's cash conversion cycle (CCC) and its components before and after operational changes. 2. The fundamental goal of the CCC is to measure the time in days it takes for a company to convert its investments in inventory and other resources into cash flows from sales. 3. The three main components of the CCC formula are: - Inventory Conversion Period (ICP) - Receivables Collection Period (RCP) - Payables Deferral Period (PDP) 4. The Inventory Conversion Period (ICP) measures the average number of days inventory is held before being sold. 5. The Receivables Collection Period (RCP) measures the average number of days it takes to collect payment from customers after a sale. 6. The Payables Deferral Period (PDP) measures the average number of days the company takes to pay its suppliers. 7. The formula for the Cash Conversion Cycle (CCC) is: $$\text{CCC} = \text{ICP} + \text{RCP} - \text{PDP}$$ 8. To calculate the Inventory Conversion Period (ICP): $$\text{ICP} = \frac{\text{Average Inventory}}{\text{Cost of Goods Sold per day}}$$ Since Cost of Goods Sold (COGS) is not given, we approximate COGS as sales (assuming all sales are costed similarly), so: $$\text{COGS per day} = \frac{\text{Annual Sales}}{365}$$ 9. Guardrail PLC’s initial ICP: $$\text{ICP} = \frac{20,000,000}{\frac{80,000,000}{365}} = \frac{20,000,000}{219,178.08} \approx 91.25 \text{ days}$$ 10. To calculate the Receivables Collection Period (RCP): $$\text{RCP} = \frac{\text{Average Accounts Receivables}}{\text{Sales per day}} = \frac{\text{Average Accounts Receivables}}{\frac{\text{Annual Sales}}{365}}$$ 11. Guardrail PLC's initial RCP: $$\text{RCP} = \frac{16,000,000}{\frac{80,000,000}{365}} = \frac{16,000,000}{219,178.08} \approx 73.00 \text{ days}$$ 12. Guardrail PLC's Payables Deferral Period (PDP) is given by the credit terms of net 35 days, so: $$\text{PDP} = 35 \text{ days}$$ 13. Guardrail PLC's initial Cash Conversion Cycle (CCC): $$\text{CCC} = 91.25 + 73.00 - 35 = 129.25 \text{ days}$$ 14. New Inventory Conversion Period (ICP) after reducing inventory by 4,000,000: $$\text{New ICP} = \frac{20,000,000 - 4,000,000}{\frac{80,000,000}{365}} = \frac{16,000,000}{219,178.08} \approx 73.00 \text{ days}$$ 15. New Receivables Collection Period (RCP) after reducing accounts receivables by 2,000,000: $$\text{New RCP} = \frac{16,000,000 - 2,000,000}{\frac{80,000,000}{365}} = \frac{14,000,000}{219,178.08} \approx 63.87 \text{ days}$$ 16. Guardrail PLC's new Cash Conversion Cycle (CCC): $$\text{New CCC} = 73.00 + 63.87 - 35 = 101.87 \text{ days}$$ 17. The change in the cash conversion cycle is: $$129.25 - 101.87 = 27.38 \text{ days}$$ So, the CCC is shortened by approximately 27.38 days. Final answers: - Initial CCC: 129.25 days - New CCC: 101.87 days - CCC reduced by: 27.38 days