Question

The shoe tree currently has an operating cycle of 199 days and a cash cycle of 54 days. the company is implementing some changes that will reduce the inventory period by 11 days, decrease the receivables period by 6 days, and decrease the accounts payable period by 4 days. how many days will be in the new cash cycle once all of these changes become effective

Answer 1

Answer:

There will be 41 days in the new cash cycle once all of these changes become effective

Explanation:

According to the given data we have the following:

Old Cash Cycle = 54 days

Decrease in Inventory Period = 11 days

Decrease in Receivables Period = 6 days

Decrease in Accounts Payable Period = 4 days

In order to calculate how many days will be in the new cash cycle once all of these changes become effective, we need to calculate first the Decrease in Cash Cycle as follows:

Decrease in Cash Cycle = Decrease in Inventory Period + Decrease in Receivables Period - Decrease in Accounts Payable Period

Decrease in Cash Cycle = 11 days + 6 days - 4 days

Decrease in Cash Cycle = 13 days

Therefore, we would calculate the New Cash Cycle as follows:

New Cash Cycle = Old Cash Cycle - Decrease in Cash Cycle

New Cash Cycle = 54 days - 13 days

New Cash Cycle = 41 days

There will be 41 days in the new cash cycle once all of these changes become effective

Answer 2

Answer:

41 days

Explanation:

Cash cycle is a period of time between when business pays cash to suppliers and receives from the customers. It includes the inventory days, receivable days and payable days.

Company has cash cycle of 54 days.

Impact of change on cash cycle

• Reduction in inventory period will reduce the cash cycle by 11 days.
• Decrease in receivable period will also decrease the cash cycle by 6 days.
• Decrease in account payable days will increase the cash cycle by 4 days.

New Cash cycle = Current Cash cycle + Changes = 54 days - 11 days - 6 days + 4 days = 41 days