The Switch Back currently has 52 days in its cash cycle and 131 days in its operating cycle. The firm purchases its inventory from one supplier. This supplier has offered a 5 percent discount to The Switch Back if it will pay for its purchases within 10 days instead of the normal 32 days. If the Switch Back opts to take advantage of the discount offered, its new operating cycle will be _____ days and its new cash cycle will be _____ days.

Question

Quizplus · Accepted Answer

To calculate the new operating cycle, we need to subtract the payment period from the current operating cycle and add the new payment period.

New Operating Cycle = Current Operating Cycle - Payment Period + Discounted Payment Period
New Operating Cycle = 131 - 32 + 10
New Operating Cycle = 109 days

To calculate the new cash cycle, we need to add the new payment period to the new operating cycle.

New Cash Cycle = New Operating Cycle + Payment Period
New Cash Cycle = 109 + 32 - 10
New Cash Cycle = 131 days

Therefore, the new operating cycle will be 109 days and the new cash cycle will be 131 days. The best choice is D.

The Switch Back Currently Has 52 Days in Its Cash