Camp Manufacturing turns over its inventory eight times each year, has an average payment period of 35

Question:

Camp Manufacturing turns over its inventory eight times each year, has an average payment period of 35 days, and has an average collection period of 60 days. The firm’s annual sales are $3.5 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 and cash conversion cycle.

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 resources, by how much would it increase its annual profits by favorably changing its current cash conversion cycle by 20 days?

Cash Conversion Cycle
Cash conversion cycle measures the total time a business takes to convert its cash on hand to produce, pay its suppliers, sell to its customers and collect cash from its customers. The process starts with purchasing of raw materials from suppliers,...