Merican Products is concerned about managing cash efficiently. On the average, inventories have an age of 9090 days, and accounts receivable are collected in 6060 days. Accounts payable are paid approximately 3030 days after they arise.
The firm's operating-cycle investments are $30 million per year. Cost of goods sold are $20 million, and purchases are $15 million.
a. Calculate the firm's operating cycle.
b. Calculate the firm's cash conversion cycle.
c. Calculate the amount of resources needed to support the firm's cash conversion cycle.
d. Discuss how management might be able to reduce the cash conversion cycle.
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