Cash conversion cycle American Products is concerned about managing cash efficiently. On the average, inventories have an age of 83 days, and accounts receivable are collected in 45 days. Accounts payable are paid approximately 26 days after they arise. The firm has annual sales of abou $35 million. Cost of goods sold are $20 million, and purchases are $14 million. a. Calculate the firm's operating cycle. b. Calculate the firm's cash conversion cycle. c. Calculate the amount of resources needed to support the firm's cash conversion cycle. d. Discuss how management might be able to reduce the cash conversion cycle.

Cash conversion cycle American Products is concerned about managing cash efficiently. On the average, inventories have an age of 83 days, and accounts receivable are collected in 45 days. Accounts payable are paid approximately 26 days after they arise. The firm has annual sales of abou $35 million. Cost of goods sold are $20 million, and purchases are $14 million. a. Calculate the firm's operating cycle. b. Calculate the firm's cash conversion cycle. c. Calculate the amount of resources needed to support the firm's cash conversion cycle. d. Discuss how management might be able to reduce the cash conversion cycle.

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter16: Supply Chains And Working Capital Management

Section: Chapter Questions

Problem 11P

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Cash conversion cycle American Products is concerned about managing cash effi-ciently. On average, inventories have an age of 80 days, and accounts receivable are collected in 40 days. Accounts payable are paid approximately 30 days after they arise. The firm has annual sales of about $30 million. Goods sold total $20 million, and purchases are $15 million. c. Calculate the amount of resources needed to support the firm’s cash conversion cycle?
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