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Homework answers / question archive / Carroll & King Corporation has $5 million of inventory and $2 million of accounts receivable
Carroll & King Corporation has $5 million of inventory and $2 million of accounts receivable. Its average daily sales are $120,000. The company's payables deferral period (accounts payable divided by daily purchases) is 30 days. What is C&K's cash conversion cycle?
a. 24 b. 26 c. 27 d. 28 e. 30
Calculation of Cash Conversion Cycle:
Cash Conversion Cycle (CCC) = Average collection period + Days sales outstanding - Payables deferral period
Here,
Average collection period = Accounts receivables / Average daily sales
= $2,000,000 / $120,000
= 16.67 Days
Days sales outstanding = Inventory / Average daily sales
= $5,000,000 / $120,000
= 41.67 Days
Payables deferral period = 30.00 Days
Cash Conversion Cycle (CCC) = 16.67 Days + 41.67 Days - 30.00 Days = 28.34 Days or 28 days
