Ithaca Iron has annual operating outlays of $1,800,000 and a cash conversion cycle of 60 days. If the firm currently pays 12 percent for negotiated financing and reduces its cash conversion cycle to 50 days, the annual savings is closest to
A) $60,000.
B) $10,000.
C) $6,000.
D) $16,000.

Question

Quizplus · Accepted Answer

The reduction in the cash conversion cycle from 60 days to 50 days is a 10-day reduction. The daily operating outlay is $1,800,000 / 365 = $4,931.51. The savings from reducing the cash conversion cycle is 10 days * $4,931.51 * 12% = $5,917.81, which is closest to $6,000.

Ithaca Iron Has Annual Operating Outlays of $1,800,000 and a Cash