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    a cash conversion cycle

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    The Phoenix Corporation is interested in examining its cash conversion cycle. Suppose a Phoenix manager has assembled the following data for your use:

    $2.75 million Average Inventory
    $1.05 million Average Accounts receivable
    $0.60 million Average Accounts payable
    $0.45 million Wages, benefits, and payroll taxes payable
    $75.0 million Sales
    $40.0 million Cost of sales
    $6.30 million Selling, general, and administrative expenses

    Estimate each of the following:
    a. Inventory conversion period
    b. Receivables collection period
    c. Payables deferral period
    d. Operating cycle
    e. Cash conversion cycle

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    Solution Preview

    In order to answer these questions, you must be familiar with a few formulas.

    (a) Inventory collection period = average inventory / (cost of goods sold / 365)
    = 2.75 million / (40.0 million / 365) = 2.75 / 1.110 = 25 days

    Remember to use cost of goods sold or cost of sales in the denominator here because we are calculating a measure of ...

    Solution Summary

    A cash conversion cycle is clearly assessed. Wages, benefits and payroll taxes payable are determined.