A firm has an average age of inventory of 60 days, an average collection period of 45 days, and an average payment period of 30 days. The firm's cash conversion cycle is ________ days.
A) 15
B) 45
C) 75
D) 135

Question

Quizplus · Accepted Answer

The formula for calculating the cash conversion cycle (CCC) is:

CCC = Inventory conversion period + Receivable conversion period - Payable conversion period

Inventory conversion period = Average age of inventory = 60 days
Receivable conversion period = Average collection period = 45 days
Payable conversion period = Average payment period = 30 days

Therefore, CCC = 60 + 45 - 30 = 75 days.

Hence, the best choice is C.

A Firm Has an Average Age of Inventory of 60