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
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
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
American Products is concerned about managing cash efficiently. On the
average, inventories have an age of 90 days, and
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 that there is a 365-day year.
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.
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