The objective of working capital management is ultimately to minimize the cash conversion cycle. Suppose a firm has inventory turnover of 8 times each year and average payment period of 35 days, and has an average collection period of 60 days. The annual sales are $4 million and cost of goods sold is $3 million. The companys cost of revenue is $2 million and the purchase is $2.2 million. Assume a 365-day year.

Calculate the firms operating cycle and the cash conversion cycle.

Calculate the inventory balance.

Calculate the resources invested in the cash conversion cycle.

please show calculation methods

next question

A company is proposing a relaxation of credit standard, with hopes that it will increase profit. The following table shows the relevant data before and after the proposal.

	Sales (units)	ACP (average collection period, days)	Bad debt (% of sales)	Sales price	Variable cost	Required return	Days
Before proposal	10,000	45	1%	$40	$31	25%	365
After proposal	11,000	60	3%

Should the company relax the credit standard? (You must show all the relevant calculations).