ExpertEasy2 marksMultiple Choice
ACCA · Question 16 · Working Capital Management
Section B - Case 1: VerdiGrow
Scenario: VerdiGrow is an agricultural technology firm facing cash flow issues due to seasonal demand. The company currently has the following working capital metrics:
- Receivables days: 65 days
- Payables days: 40 days
- Inventory days: 55 days
VerdiGrow's main supplier is offering an early settlement discount of 2% if invoices are paid within 10 days, rather than the current 60 days taken by VerdiGrow. Assume a 365-day year.
Question:
What is VerdiGrow's current cash operating cycle?
Section B - Case 1: VerdiGrow
Scenario: VerdiGrow is an agricultural technology firm facing cash flow issues due to seasonal demand. The company currently has the following working capital metrics:
- Receivables days: 65 days
- Payables days: 40 days
- Inventory days: 55 days
VerdiGrow's main supplier is offering an early settlement discount of 2% if invoices are paid within 10 days, rather than the current 60 days taken by VerdiGrow. Assume a 365-day year.
Question:
What is VerdiGrow's current cash operating cycle?
Answer options:
A.
50 days
B.
80 days
C.
120 days
D.
160 days
How to approach this question
Use the formula: Cash Operating Cycle = Inventory Days + Receivables Days - Payables Days.
Full Answer
B.80 days✓ Correct
The cash operating cycle measures the time between paying out cash for raw materials and receiving cash from sales.
Formula: Inventory days + Receivables days - Payables days.
Calculation: 55 + 65 - 40 = 80 days.
Common mistakes
Adding payables days instead of subtracting them.
Practice the full ACCA FM — Financial Management Practice Exam 1
32 questions · hints · full answers · grading
More questions from this exam
Q1**Section A**
NexusDAO is a decentralized autonomous organization transitioning into a formalize...EasyQ2**Section A**
AquaVitae is a global non-governmental organization (NGO) dedicated to providing c...EasyQ3**Section A**
VoltGrid PLC, a public utility company, is evaluating the macroeconomic environmen...MediumQ4**Section A**
EcoBuild, a sustainable construction firm, needs to raise finance. The finance dir...EasyQ5**Section A**
CryptoFlow is a digital asset exchange that needs to manage its fiat currency rese...Medium