On average, Markham Manufacturing’s inventory remains on hand for 90 days before being sold; accounts payable are paid approximately every 35 days. Accounts receivable are collected, on average, within 60 days. Markham’s credit sales are $25 million per year, with cost of goods sold at 36.5% of sales, and credit purchases average 45% of cost of goods sold. Finally, Markham’s annual cost of holding working capital is 7%.

Required: a) Calculate Markham’s operating cycle.

b) Calculate Markham’s estimated cash conversion cycle (CCC).

c) Calculate the estimate of the amount of financing needed to support Markham’s estimated CCC.

d) If the firm could do something to reduce its estimated CCC by 10 days without affecting its sales, how much would it save Markham?

e) How might management reduce the estimated CCC?