A firm has annual operating outlays of $1,800,000 and a cash conversion cycle of 60 days. If thefirm currently pays 12 percent for negotiated financing and reduces its cash conversion cycle to 50days, the annual savings is __________.
A) $50,000
B) $6,000
C) $200,000
D) $216,000

Question

Quizplus · Accepted Answer

The cash conversion cycle reduction from 60 to 50 days saves 10 days of financing. The daily cost of financing is ($1,800,000 * 12%) / 360 = $6,000. Thus, the savings for 10 days is $6,000 * 10 = $6,000.

A Firm Has Annual Operating Outlays of $1,800,000 and a Cash