A firm currently has a 43 day cash cycle. Assume that the firm changes its operations such that it increases its receivables period by 2 days,decreases its inventory period by 1 day and increases its payables period by 3 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. The changes result in a net decrease of 2 days (2 - 1 - 3 = -2), so the new cash cycle is 43 - 2 = 41 days.

A Firm Currently Has a 43 Day Cash Cycle