ACCA · Question 16.2 · Working Capital Management
CASE 1: AQUAHARVEST LTD
AquaHarvest Ltd is a commercial aquaculture firm farming premium salmon. The company currently allows its wholesale customers 60 days to pay their invoices. However, due to cash flow constraints, the Finance Director is considering offering an early settlement discount of 2% if customers pay within 15 days. AquaHarvest currently finances its working capital using a bank overdraft that charges an interest rate of 8% per annum. Assume a 365-day year.
If the majority of customers accept the early settlement discount, what will be the primary impact on AquaHarvest's cash operating cycle?
Answer options:
The cash operating cycle will increase.
The cash operating cycle will decrease.
The cash operating cycle will remain unchanged.
The inventory holding period will increase.
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