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Homework answers / question archive / Williams & Sons last year reported sales of $127 million, cost of goods sold (COGS) of $105 and an inventory turnover ratio of 5

Williams & Sons last year reported sales of $127 million, cost of goods sold (COGS) of $105 and an inventory turnover ratio of 5

Finance

Williams & Sons last year reported sales of $127 million, cost of goods sold (COGS) of $105 and an inventory turnover ratio of 5. The company is now adopting a new inventory system. If the new system is able to reduce the firm's inventory level and increase the firm's inventory turnover ratio to 7 while maintaining the same level of sales and COGS, how much cash will be freed up? Do not round intermediate calculations. Round your answer to the nearest dollar

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Computation freed up cash:-

Old inventory = Cost of goods sold / Old inventory turnover ratio

= $105 / 5

= $21 million

New inventory = Cost of goods sold / New inventory turnover ratio

= $105 / 7

= $15 million

Freed up cash = Old Inventory - New Inventory

= $21 - $15

= $6 million