Flaky Jake Incorporated acquires its raw materials on a credit basis. It takes on average 40 days to pay its accounts payable and 65 days to collect its accounts receivable. The average age of inventory is 95 days. Flaky spends approximately 10 million dollars annually on operating outlays. Its opportunity cost of holding cash is 10 percent.
a. How long is Flaky’s cash conversion cycle?
b. What is Flaky’s cash turnover?
c. What is the minimum operating cash required of Flaky Jake Incorporated?
d. What will be the cost of maintaining the minimum operating cash for a year?