CFA Practice Question

There are 120 practice questions for this study session.

CFA Practice Question

Melons 'R' Us, a national chain of fruit stands, has an inventory period of 65 days, an accounts payable period of 30 days, and accounts receivable are collected, on average, in 24 days. The CFO plans to implement a discount plan in order to reduce the time it takes to collect receivables to 18 days. What will happen to the firm's cash cycle?
A. It will fall from 89 days to 83 days.
B. It will fall from 59 days to 53 days.
C. It will fall from 71 days to 65 days.
Explanation: If the accounts receivable period is shortened, the cash cycle will be as well. Before the change, the firm's operating cycle is 89 days long, making its cash cycle 59 days long.

User Contributed Comments 1

User Comment
aamir1 In the book the operating cycle is also called the cash cycle; but the answer is referring to the net operating cycle which is called the cash conversion cycle. Slightly different names.
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