American Products is concerned about managing cash efficiently.

On the average, inventories have an age of 90 days, and accounts receivable

are collected in 60 days. Accounts payable are paid approximately 30 days after they

arise. The firm has annual sales of about $30 million. 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.