Question: 1) How do you compute the operating cycle and the cash cycle? (5) 2) What are the differences between a flexible short-term financing policy and

1) How do you compute the operating cycle and the cash cycle? (5)

2) What are the differences between a flexible short-term financing policy and a restrictive one? What are the pros and cons of each? (10)

3) Operating and Cash Cycles

You have collected the following information for the Slowpay Company:

Item Beginning Ending
Inventory $6,000 $8,400
Accounts Receivable $1,920 $2,880
Accounts payable $3,240 $5,760

Credit sales for the year ended were $60,000 and the cost of goods sold was $36,000.

a) How long does it take Slowpay to collect on its receivables? (3)

b) How long does merchandise stay around before it is sold? (3)

c) How long does Slowpay take to pay its bills? (3)

d) Calculate the firm's operating cycle and cash cycle . (4)

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