Cash Cycle Quiz

Which one of these statements is correct concerning the cash cycle?

• The longer the cash cycle, the more likely a firm will need external financing.

• Increasing the accounts payable period increases the cash cycle.

• A positive cash cycle is preferable to a negative cash cycle.

• The cash cycle can exceed the operating cycle if the payables period is equal to zero.

• Adopting a more liberal accounts receivable policy will tend to decrease the cash cycle.

The cash cycle equals the:

• inventory period plus the accounts receivable period.

• change in net working capital divided by daily sales.

• operating cycle plus the accounts payable period.

• operating cycle minus the inventory period.

• operating cycle minus the accounts payable period.

Cash discounts:

• increase the amount of total credit offered.

• increase profit margins on sales.

• speed up the collection of receivables.

• area means of charging lower prices to credit customers.

• area cost-free means of increasing sales.

The cash cycle will decrease as a result of increasing the:

• payables turnover.

• days sales in inventory.

• operating cycle.

• inventory turnover rate.

• accounts receivable period.

Wilson, Inc. has an inventory turnover rate of 16, an accounts payable period of 47 days and an accounts receivable period of 37 days. What is the length of the cash cycle?

• 32.81 days

• -6.00 days

• 2.00 days

• 6.00 days

• 12.81 days

Delta Distributors has accounts receivable of $2,750,000 and average daily credit sales of $118,280. The firm offers credit terms of 2/10, net 30. On average, what is the firm's accounts receivable period?

• 19.47 days

• 23.25 days

• 37.14 days

• 20.00 days

• 18.64 days

If 34 percent of customers pay on day 10 and the remainder day in an average of 28 days, what is the average collection period?

• 19.72 days

• 20.08 days

• 21.88 days

• 18.47 days

• 22.09 days

Which one of the following will not affect the operating cycle?

• decreasing the payables turnover from 7 times to 6 times

• increasing the days sales in receivables

• decreasing the inventory turnover rate

• increasing the average receivables balance

• decreasing the credit repayment times for the firm's customers

Jaxon Markets currently has credit terms of net 30, an average collection period of 29 days, and average receivables of $211,410. The firm estimates that if it offered terms of 2/10, net 30 that 45 percent of its customers would pay on day 10 with the remainder paying on average in 32 days. How much cash could the company free up from its accounts receivables if it switched its credit policy?

• $38,762

• $50,301

• $64,219

• $58,336

• $65,009

Crocket Motors has an account receivable balance of $682,400 and the average collection period is 38 days. What are the firm's credit sales per day? 

• $17,957.89

• $23,333.33

• $71,044.38