Question

Wilco’s currently has a 43-day cash cycle. Assume the firm changes its operations such that it...

Wilco’s currently has a 43-day cash cycle. Assume the firm changes its operations such that it decreases its receivables period by 2 days, increases its inventory period by 1 day, and increases its payables period by 3 days. What will the length of the cash cycle be after these changes?

41 days

38 days

39 days

43 days

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Answer #1

Cash Cycle = Days of Inventory Outstanding + Days of Sales Outstanding – Days of Payables Outstanding

Cash Cycle = 43 Days

Impact of Adjustment for Changes Made:

  1. Increase in inventory period = Increase the Cash Cycle
  2. Decrease in Receivables Period = Decrease the cash Cycle
  3. Increase in Payables Period = Decrease the cash cycle

Current Cash Cycle

43

Adjustments for Changes Made:
  • Increase in Inventory Period

1
  • Decrease in Receivables Period

(2)
  • Increase in Payables Period

(3)

New Cash Cycle

39 Days

Hence: Option C is Right

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