Asked by Steven McCoy on Apr 26, 2024
Verified
Melons 'R' Us, a national chain of fruit stands, has an inventory period of 65 days, an accounts payable period of 30 days, and an accounts receivable period of 24 days. The CFO wants to implement a discount plan in order to reduce the receivables period to 18 days. What will happen to the firm's operating cycle?
A) It will fall from 89 days to 83 days.
B) It will fall from 59 days to 53 days.
C) It will be unaffected by the change in policy.
D) It will rise from 85 days to 91 days.
E) It will rise from 81 days to 87 days.
Operating Cycle
The duration between a company's purchase of inventory and the collection of accounts receivable generated from sales of that inventory.
Accounts Receivable Period
The accounts receivable period measures the average number of days it takes for a company to collect payments after a sale has been made, indicating the efficiency of its credit and collection policies.
Receivables Period
The mean duration required for a company to collect payments from its customers for products or services supplied on credit.
- Recognize methods to enhance the efficiency of the operating and cash cycles.
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Learning Objectives
- Recognize methods to enhance the efficiency of the operating and cash cycles.
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