(Estimating the cost of bank credit) (Related to Checkpoint 18.2 on page 621)

Lotfield enterprises is just starting in business and the owner has heard about the need to understand her operating cycle and her cash conversion cycle. She asks you to illustrate and explain why this matters for her cashflow. Her plans are as follows:

a. Conversion of raw materials to sold product will be 46 days.

b. Customers will be required to pay within 34 days.

c. Her raw material supplier will give her 10 days of interest-free credit.