Question

Holding other factors the same, which of the following will cause both the Operating Cycle and the Cash Cycle to decrease?

Decreasing the Inventory Turnover from 7 times to 6 times

Decreasing the Accounts Receivables Turnover from 7 times to 6 times

None of the other answer choices are correct

Increasing the Inventory Period by 7 days while simultaneously increasing the Accounts Payable period by 8 days

Increasing the average Inventory balance

Decreasing the Inventory Period by 7 days while simultaneously decreasing the Accounts Payable period by 7 days

Answer 1

The answer is

None of the other answer choices are correct

Operating cycle = Days in Inventory + Days in receivables

Cash Cycle = Days in Inventory + Days in Rceeivables - Days in payable

Increasing Inventory balance or decreasing inventory and receivables turnover will lead to an increase in both

Decreaseing both inventory period and accounts receivables period will lead to no change in cash cycle

hence, none of the answer choices will lead a decrease in both