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In: Finance
QUESTION FOUR Australian Products Ltd. is concerned about managing cash in an efficient manner. On average,...
QUESTION FOUR
Australian Products Ltd. is concerned about managing cash in an efficient manner. On average, inventories have an average age of 90 days and accounts receivable are collected in 60 days. Accounts payable are paid approximately 30 days after they arise. The firm spends $30 million on operating cycle (OC) investments each year, at a constant rate. Assuming a 365-day year:
- Calculate the firm’s OC.
- Calculate the firm’s CCC.
- Calculate the amount of financing required to support the
firm’s CCC.
Discuss how management might be able to reduce the
CCC.
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