Reference no: EM132918539

Use the following information to answer the questions.

• PVT Limited buys $15,000 of raw materials and inventory from its suppliers, purchasing them on credit, which means that the firm does not have to pay cash immediately at the time of purchase.
• About 17 days later, PVT Limited pays for the materials and inventory.
• After another 15 days, PVT Limited sells the finished products to an automotive manufacturer, but the sale is on credit, meaning that the automotive manufacturer does not pay cash immediately.
• About 30 days after the sale, the automotive manufacturer pays for the product, producing a cash inflow for PVT Limited.
• PVT Limited purchases supplies on terms of net 20 and offers terms of net 30 to its customers.

Problem i) Compute the operating cycle.

Problem ii) Compute the cash conversion cycle.

Problem iii) Is PVT Limited doing a good job of managing its accounts payable? Why or why not?

Problem iv) Is PVT Limited doing a good job of managing its accounts receivable? Why or why not?

Problem v) Keeping the current operating cycle, under what condition, could PVT Limited have a negative cash conversion cycle?