• • When the Copper Corporation buys inventory, it must often rely on short-term bank financing to pay for the goods. Bank financing is usually in the form of a short-term self-liquidating loan, where the amount outstanding increases when goods are paid for and decreases when cash is received from sales. Copper’s bank charges interest at prime (7%) plus 1%.

  
  

  •  2 Consider the following example. November 1 Buy inventory for $10,000 December 1 Pay supplier / borrow $10,000 January 30 Sell goods for $20,000 March 15 Collect receivables, $20,000, and repay loan, $10,000

  
  

  •  ● Copper buys and receives $10,000 worth of inventory on November 1.

  
  

  • ● The supplier’s invoice is due on December 1.

  
  

  • ● Copper expects to sell the goods about January 30, say for $20,000.

  
  

  • ● Copper expects to receive the cash about March 15.

  
  

  •  ● Accordingly, Copper would borrow $10,000 on December 1 in order to pay the supplier. It would repay the loan on March 15, when the cash becomes available.

  
  

  • Required:

  
  

  •  a. What is the inventory holding period?  

  
  

  • b. What is the receivables collection period? 

  
  

  •  c. What is the operating cycle?  

  
  

  • d. What is the payables payment period? 

  
  

  • e. What is the cash conversion cycle?  

  
  

  • f. Calculate Copper’ interest expense in this situation.  

  
  

  • Explain 3 ways in which Cooper can reduce its interest charges with better management of its operating cycle.

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