7. The firm has an inventory period of 84.6 days, an accounts payable period of 43.2 days, and an accounts receivable period of 41.7 days. Management is considering an offer from their suppliers to pay within 10 days and receive a discount of 2 percent. If the new discount is taken, the accounts payable period is expected to decline by 30.4 days. What will be the new operating cycle given the change in the payables period

Question

Sariah Levine

Business

13 August, 14:46

7. The firm has an inventory period of 84.6 days, an accounts payable period of 43.2 days, and an accounts receivable period of 41.7 days. Management is considering an offer from their suppliers to pay within 10 days and receive a discount of 2 percent. If the new discount is taken, the accounts payable period is expected to decline by 30.4 days. What will be the new operating cycle given the change in the payables period

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Answers (1)

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Salma Barron · Answer 1

Answer: 126.3 days.

Explanation:

The Operating Cycle essentially refers to how long it takes a business to convert inventory to cash. The entire period between production, to selling to recovering money from Receivables is incorporated here.

The formula therefore is,

= Days Sales in inventory + Days Sales Receivables

= 84.6 + 41.7

= 126. 3 days