A firm with a cash conversion cycle of 175 days can stretch its average payment period from 30 days to 45 days. This will result in a(n) ________ in the cash conversion cycle of ________ days.
A) increase; 15
B) decrease; 15
C) increase; 45
D) decrease; 45

Question

Quizplus · Accepted Answer

Stretching the average payment period from 30 days to 45 days will increase the time taken by the firm to pay its suppliers, resulting in a longer accounts payable period. This will thus decrease the cash conversion cycle as the firm will have more time to pay its debts, reducing the need for cash. The decrease in the cash conversion cycle will be 15 days (45-30=15).

A Firm with a Cash Conversion Cycle of 175 Days