A Firm Has a Cash Conversion Cycle of 120 Days

question 336

Multiple Choice

A firm has a cash conversion cycle of 120 days, an average collection period of 25 days, and an average payment period of 50 days. The firm's average age of inventory is ________ days.

• A) 45
• B) 95
• C) 125
• D) 145

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Definitions:

Inventories

Inventories are the goods and materials a business holds for the purpose of resale or production in the ordinary course of business.

Cost of Goods Sold

The total cost directly involved in manufacturing or acquiring the products sold by a company during a particular period.

Acid Test Ratio

A liquidity ratio; those assets that are most easily converted to cash are divided by current liabilities to indicate ability to pay off short-term debt. Also called quick ratio.

Quick Assets

Assets that can be quickly converted into cash without significantly affecting their value, such as stocks and receivables.