Plum Enterprises is a retailer of exotic fruits. The firm turns its inventory 6 times each year and has an average collection period of 39 days. The firm’s annual sales are $4.2 million, its cost of goods sold represents 72% of sales, and its purchases represent 81% of the cost of goods sold. The firm’s accounts payable total $0.6 million. Assume a 365-day year. Calculate the firm’s cash conversion cycle. Give your answer in days, rounded to 1 decimal place. Round your answer to 1 decimal place

To calculate the cash conversion cycle (CCC) for Plum Enterprises, we need to use the formula: CCC = DIO + DSO - DPO where DIO is the days of inventory outstanding, DSO is the days sales outstanding, and DPO is the days payable outstanding. To calculate DIO, we can use the inventory turnover ratio: Inventory turnover ratio = Cost of goods sold / Average inventory Since Plum Enterprises turns its inventory 6 times each year, its inventory turnover ratio is: 6 = Cost of goods sold / Average inventory Rearranging this equation, we get: Average inventory = Cost of goods sold / 6 To calculate DIO, we need to divide the average inventory by the cost of goods sold per day: DIO = Average inventory / (Cost of goods sold / 365) Substituting the given values into these equations, we get: Average inventory = ($4.2 million * 0.72) / 6 = $504,000 Cost of goods sold per day = $4.2 million * 0.72 / 365 = $8,304.11 DIO = $504,000 / $8,304.11 = 60.7 days To calculate DSO, we can use the average collection period: Average collection period = Accounts receivable / (Annual credit sales / 365) Since we don't have information about Plum Enterprises' accounts receivable or annual credit sales, we cannot calculate DSO. To calculate DPO, we can use the accounts payable turnover ratio: Accounts payable turnover ratio = Cost of goods sold / Accounts payable Since Plum Enterprises' purchases represent 81% of the cost of goods sold and its accounts payable total $0.6 million, its accounts payable turnover ratio is: Accounts payable turnover ratio = (Cost of goods sold * 0.81) / Accounts payable = ($4.2 million * 0.72 * 0.81) / $0.6 million = 4.6048 To calculate DPO, we need to divide the number of days in a year by the accounts payable turnover ratio: DPO = 365 / Accounts payable turnover ratio = 365 / 4.6048 ≈ 79.3 days Therefore, the cash conversion cycle for Plum Enterprises is approximately: CCC ≈ DIO + DSO - DPO ≈ 60.7 + DSO - 79.3 ≈ -18.6 days Since the cash conversion cycle is negative, it means that Plum Enterprises is able to collect cash from its customers before it has to pay its suppliers.