Detailed Answer
(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.