Unformatted text preview: , and accounts
receivable are collected in 60 days. Accounts payable are paid approximately 30
days after they arise. The firm spends $30 million on operating-cycle investments
each year, at a constant rate. Assume a 360-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.
d. Discuss how management might be able to reduce the cash conversion cycle. PROBLEMS
LG2 CHAPTER 14 Working Capital and Current Assets Management 629 LG2 14–2 Changing cash conversion cycle Camp Manufacturing turns over its inventory
8 times each year, has an average payment period of 35 days, and has an average
collection period of 60 days. The firm’s total annual outlays for operating-cycle
investments are $3.5 million. Assume a 360-day year.
a. Calculate the firm’s operating and cash conversion cycles.
b. Calculate the firm’s daily cash operating expenditure. How much in
resources must be invested to support its cash conversion cycle?
c. If the firm pays 14% for these re...
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