Cash Conversion Cycle Multiple Choice What is the cash conversion cycle for a firm with $3million average inventories, $1

Business Aug 15, 2020

Cash Conversion Cycle Multiple Choice

What is the cash conversion cycle for a firm with $3million average inventories, $1.5million average accounts payable, a receivables period of 40 days, and an annual cost of goods sold of $18 million?

a. 14.59 days
b. 46.25 days
c. 70.41 days
d. 136.25 days

Expert Solution

Days in inventory = 3 million / 18 million * 365 days = 60.83 days
Receivable period = 40 days
Days in Accounts payables = 1.5 million / 18 million * 365 days = 30.42 days

Cash conversion Cycle = Days in inventory +Receivable period - Days in Accounts payables
= 60.83+40-30.42 = 70.41 days
Answer is c.

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