Arlene knew that the company paid 12 annual interest

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Unformatted text preview: ’s sales. The firm’s variable costs equal 80% of sales. Roche Publishing Company is currently spending $12,000,000 per year on its operating-cycle investment, but it expects that initiating a cash discount will increase its operating-cycle investment to $13,100,000 per year. Arlene’s concern was whether the firm’s cash management was as efficient as it could be. Arlene knew that the company paid 12% annual interest for its resource investment and therefore viewed this value as the firm’s required return. For this reason, she was concerned about the resource investment cost resulting from any inefficiencies in the management of Roche’s cash conversion cycle. CHAPTER 14 Working Capital and Current Assets Management 633 Required a. Assuming a constant rate for purchases, production, and sales throughout the year, what are Roche’s existing operating cycle (OC), cash conversion cycle (CCC), and resource investment need? b. If Roche can optimize operations according to industry standa...
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