Cash conversion cycle American Products is concerned about managing cash efficiently. On the average, inventories have...
Cash conversion cycle American Products is concerned about
managing cash efficiently. On the average, inventories have an age
of 90 days, and accounts receivable are collected in 60 days.
Accounts payable are paid approximately 30 days after they arise.
The firm has annual sales of about $30 million. Assume there is no
difference in the investment per dollar of sales in inventory,
receivables, and payables; and, a 365-day year.
a. Calculate the firm
Homework Answers
Operating cycle = Average age of inventories
OC + Average collection period
= 90 days + 60 days
= 150 days
b. Cash Conversion Cycle = Operating cycle - Average payment period
CCC = 150 days - 30 days
= 120 days
c. Resources needed = (total annual outlays ? 365 days) x CCC
= [$30,000,000 ? 365] x 120
= $9,863,014
d. Shortening either the average age of inventory or the average collection period, lengthening the average payment period, or a combination of these can reduce the cash conversion cycle.
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here is the question
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