Baxter United currently has a 41 day cash cycle. Assume the ﬁrm changes its operations such that it decreases its receivables period by 7 days, decreases its inventory period by 4 days, and
Decreases its payables period by 3 days. What will be the length of the cash cycle after these
Changes?

Question

Quizplus · Accepted Answer

We can calculate the new cash cycle as follows:
Cash cycle = Receivables period + Inventory period - Payables period

Old cash cycle = 41 days

New receivables period = old receivables period - 7 days = 41 - 7 = 34 days

New inventory period = old inventory period - 4 days = 41 - 4 = 37 days

New payables period = old payables period - 3 days = 41 - 3 = 38 days

New cash cycle = 34 + 37 - 38 = 33 days

Therefore, the best choice is B, 33 days.

Baxter United Currently Has a 41 Day Cash Cycle