Tryst Energy Inc. has an average age of inventory of 65 days, an average collection period of 60 days and an average payment period of 65 days. The firm's total annual outlays for operating cycle investments are $3.65 million. Assuming a 365-day year, how much financing is required to support its cash conversion cycle?
A) $600,000
B) $650,000
C) $700,000
D) $559,000

Question

Quizplus · Accepted Answer

The cash conversion cycle is calculated as the average age of inventory plus the average collection period minus the average payment period: 65 + 60 - 65 = 60 days. The financing required is (60/365) * $3.65 million = $600,000.