A firm with a cash conversion cycle of 200 days and an operating cycle of 120 days has an average payment period of:
A)320
B)180
C)3
D)cannot be determined from this information

Question

Quizplus · Accepted Answer

The average payment period can be calculated by subtracting the average age of inventory from the operating cycle.

Operating Cycle = Average age of inventory + Average collection period
120 = Average age of inventory + Average collection period

Cash Conversion Cycle = Operating Cycle - Average payment period
200 = 120 - Average payment period

Solving for Average payment period:
80 = Average payment period

Therefore, the firm has an average payment period of 80 days or 180 days (if it is calculated based on the number of days in a year). The correct answer is B.

A Firm with a Cash Conversion Cycle of 200 Days