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Working Capital Management: Cash Conversion Cycle, Accounts payable, etc.

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The Corporation has an inventory conversion period of 57 days, a receivables collection period of 35 days, and a payables deferral period of 25 days. Its annual credit sales are $5,000,000, and its annual credit purchases are $3,500,000.

a. What is the length of the firm's cash conversion cycle?

b. What is the firm's investment in accounts receivable?

c. What is the firm's level of accounts payable?

d. Calculate the company's inventory turnover ratio.

e. Identify three ways in which the company could reduce its cash conversion cycle? What are possible risks in reducing it?

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Solution Summary

This solution shows step-by-step calculations to determine cash conversion cycle, investment in accounts receivable, accounts payable, and inventory turnover ratio. It also identifies three ways a company would reduce its cash conversion cycle. All formulas are shown in a clear and structured manner.