A firm has a cash conversion cycle of 60 days. Annual outlays are $12 million and the cost of financing is 12 percent. If the firm reduces its average age of inventory by 10 days, the annual savings is ________. (Assume a 365-day year.)
A) $10,400
B) $14,000
C) $28,800
D) $39,452

Question

Quizplus · Accepted Answer

The annual savings is calculated as follows:Annual savings = (Cost of financing * Annual outlays * Reduction in average age of inventory) / 365 days= (0.12 * $12 million * 10 days) / 365 days= $39,452

A Firm Has a Cash Conversion Cycle of 60 Days