Wilson's has an inventory turnover rate of 16,an accounts payable period of 47 days,and an accounts receivable period of 37 days.What is the length of the cash cycle?
A)32.81 days
B)−6.00 days
C)2.00 days
D)6.00 days
E)12.81 days

Question

Quizplus · Accepted Answer

The cash cycle is calculated as:

Cash Cycle = Inventory Conversion Period + Accounts Receivable Period - Accounts Payable Period

We are given the inventory turnover rate, which can be converted to the inventory conversion period as:

Inventory Conversion Period = 365 days / inventory turnover rate
Inventory Conversion Period = 365 / 16
Inventory Conversion Period = 22.81 days

Substituting the given values in the formula for the cash cycle, we get:

Cash Cycle = 22.81 days + 37 days - 47 days
Cash Cycle = 12.81 days

Therefore, the length of the cash cycle is 12.81 days. The best choice is E.

Wilson's Has an Inventory Turnover Rate of 16,an Accounts Payable