The operating cycle measures the average length of time to invest cash in inventory, convert the inventory to accounts receivable, and collect the receivables.
Beg you want JUST the % worked on this year, so use ** (1-x%) where x% is the % complete the item came in with (everything completed is at 100%, so 1-x gives you the amt completed this year); then started is at 100%.
Conversion costs are JUST the ones from this year (started).
This type of risk is most closely associated with elements of the macroeconomic environment in which a firm operates and would include, for example, interest rate risk and inflation risk.
Calculate the PV of all the cash inflows associated with the project--use after-tax income CFs, and don't forget to include the PV of the residual value if there is one. Can be used to rank projects....a project may have a higher NPV but given the cost outlay a lower index.
Basically, this measures the number of days to go from cash through inventory and accounts receivable, back to cash.lower.