- CFA Exams
- CFA Level I Exam
- Topic 3. Corporate Issuers
- Learning Module 4. Working Capital and Liquidity
- Subject 1. Cash Conversion Cycle
CFA Practice Question
On May 15, your firm receives 20 cases of designer pens. On June 30, your firm pays $3,250 for the pens. On July 15, the pens are sold on credit for $10,500. On September 10, your firm collects the receivable in full. If each transaction occurs at the end of the business day, how many days are in the operating cycle?
B. 57 days
C. 61 days
D. 72 days
E. 118 days
A. 46 days
B. 57 days
C. 61 days
D. 72 days
E. 118 days
Correct Answer: E
B. This is the number of days in the accounts receivable period.
C. This is the number of days in the inventory period.
D. This is the number of days in the cash cycle (operating cycle - days payable oustanding).
A. This is the number of days in the accounts payable period.
B. This is the number of days in the accounts receivable period.
C. This is the number of days in the inventory period.
D. This is the number of days in the cash cycle (operating cycle - days payable oustanding).
E = B + C = 57 + 61 = 118
User Contributed Comments 10
| User | Comment |
|---|---|
| rfvo | Yeah, right. |
| Eforrest | could you explain please? |
| azramirza | count from may 16 till sept 10=118 days |
| DonAnd | Operating Cycle = # dys of inventory + # dys of receivables |
| gill15 | what rtvo said....but as Dr. Evil would say it... Riggghhht.... |
| schweitzdm | How do you do this problem when you aren't given the average accounts receivable? |
| Teeto | It is the number of days passed since the pens are received (15 May) till they ares sold and cash is collected (September 10). The question enhances understanding of the topic a lot. |
| khalifa92 | what would the net operating cycle be? |
| MathLoser | Hey guys, just in case you don't know how to count the date. Use your calculator TI BA 2 + Let's calculate the number of days of inventory: 1/ [2ND] [1] (Date) 2/ DT1 = 5 [.]1519 . It will return 05-15-2019. If you are not familiar with this format, change your date format to EUR in [2ND] [.] (Format) 3/ DT2 = 7[.]1519. It will return 07-15-2019 4/ [CPT] BDB = 61 That's our answer. If there are only 360 days, press the arrow until you see ACT. [2ND][ENTER] (Set) it to 360. |
| walterli | count days for inventory: 61 for account receivable collection: 57 Operating cycle: 61+57=118 |