Eagle Sporting Goods has $2.5 million in inventory and $2
million in accounts receivable. Its average daily sales are
$100,000. The firm’s payables deferral period is 30 days and
average daily cost of sales are $50,000. What is the length of the
firm’s cash conversion period?

(d) The requirement is to calculate the cash conversion
cycle. The cash conversion period is calculated as the Inventory
conversion period + Receivables collection period – Payables
deferral period. Answer (d) is correct because the inventory
conversion period is $2,500,000/$50,000 = 50 days, and the
receivable conversion period is $2,000,000/$100,000 = 20 days.
Therefore, the cash conversion cycle is equal to 50 days + 20 days
– 30 days = 40 days. Answer (a) is incorrect because is
erroneously adds the payable deferral period.