A growing company is assessing current working capital requirements. An average of 58 days is required to convert raw materials into finished goods and to sell them. Then an average of 32 days is required to collect on receivables. If the average time the company takes to pay for its raw materials is 15 days after they are received, then the total cash conversion cycle for this company would be
A. 75 days.
B. 90 days.
C. 41 days.
D. 11 days.
Answer:A
A is corrent. The cash conversion cycle is the length of time between paying for purchases and receiving cash from the sale of finished goods.  It is calculated as follows:  Cash conversion cycle = Inventory conversion period + Receivables collection period – Payables deferral period = 58 days + 32 days – 15 days = 75 days.
B is incorrect. This calculation omits the subtraction of the payables deferral period: Cash conversion cycle = Inventory conversion period + Receivables collection period = 58 days + 32 days = 90 days.
C is incorrect.  This solution subtracts, rather than adds, the receivables collection period and also adds, rather than subtracts, the payables deferral period:  Cash conversion cycle = Inventory conversion period – Receivables collection period + Payables deferral period = 58 days – 32 days + 15 days = 41 days.
D is incorrect. This solution subtracts, rather than adds, the receivables collection period:
Cash conversion cycle = Inventory conversion period – Receivables collection period – Payables deferral period = 58 days – 32 days – 15 days = 11 days.