The Pearson Co. currently has a 25 day cash cycle. Assume the firm changes its operations such that it increases its receivables period by 3 days, decreases its inventory period by 2 days, and decreases its payables period by 5 days. What will the length of the cash cycle be after these changes?

Question

Quizplus · Accepted Answer

The cash cycle is calculated as the receivables period plus the inventory period minus the payables period. Initially, the cash cycle is 25 days. With the changes: increase receivables by 3 days, decrease inventory by 2 days, and decrease payables by 5 days, the net change is +3 - 2 + 5 = +6 days. Therefore, the new cash cycle is 25 + 6 = 31 days.