Question
In: Finance
Your firm currently has an operating cycle of 90 days. You are analyzing some operational changes...
Your firm currently has an operating cycle of 90 days. You are analyzing some operational changes which are expected to decrease the accounts receivable period by 4 days and decrease the inventory period by 5 days. The accounts payable turnover rate is expected to increase from 8 to 9 times per year. If all of these changes are adopted, what will be your firm's new cash cycle?
a) 46 days
b) 41 days
c) 51 days
d) 72 days
e) 36 days
Solutions
Expert Solution
Answer : Correct Option is d) 72 days
Calculation
Cash Conversion Cycle = Operating Cycle +/- Ajustment in Account Receivable period and inventory Turnover period - Accounts payable period
= 90 - 4-5-9
= 72 days.
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