P151 CASH CONVERSION CYCLE

American Products is concerned about managing cash efficiently. On average, inventories have an age of 80 days, and accounts receivable are collected in 40 days. Accounts payable are paid approximately 30 days after they arise. The firm has annual sales of about $30 million. Goods sold total $20 million, and purchases are $15 million.

a. Calculate the firms operating cycle.

b. Calculate the firms cash conversion cycle.

c. Calculate the amount of resources needed to support the firms cash conversion cycle.

d. Discuss how management might be able to reduce the cash conversion cycle.