Jackson's, Inc. currently has an operating cycle of 154 days and a cash cycle of 38 days. The firm is implementing some changes which will reduce the inventory period by 16 days and decrease the receivables period by 4 days on average. The accounts payable period will be decreased by 3 days. How many days will be in the new cash cycle once all of these changes become effective?

Question

Quizplus · Accepted Answer

Current Cash Cycle = Operating Cycle - Accounts Payable Period

Cash Cycle = 154 - 38 = 116 days

After changes:

Inventory period reduced by 16 days => Operating Cycle = 138
Receivables period reduced by 4 days => Cash cycle = Operating cycle - Receivables Period = 138 - 34 = 104
Accounts Payable period reduced by 3 days => Cash cycle = 104 - 3 = 101

Therefore, the new cash cycle will be 101 days.

The correct answer is C) 21 days.