Rossiter's currently has a cash cycle of 43.4 days. Assume the operations are changed such that the receivables period decreases by 2.6 days, the inventory period by increases by 1.3 days, and the payables period increases by 3.4 days. What will be the length of the cash cycle after these changes?
A) 39.2 days
B) 45.5 days
C) 38.7 days
D) 41.3 days
E) 48.1 days

Question

Quizplus · Accepted Answer

Starting cash cycle = Receivables period + Inventory period - Payables period
43.4 = Receivables period + Inventory period - Payables period

New cash cycle = (Receivables period - 2.6) + (Inventory period + 1.3) - (Payables period + 3.4)
= Receivables period + Inventory period - Payables period - 4.7

Substituting 43.4 for the starting cash cycle:
43.4 - 4.7 = Receivables period + Inventory period - Payables period
38.7 = Receivables period + Inventory period - Payables period

Therefore, the new cash cycle will be 38.7 days.

Rossiter's Currently Has a Cash Cycle of 43