A Firm Has Arranged for a Lockbox System to Reduce

question 169

Multiple Choice

A firm has arranged for a lockbox system to reduce collection time of accounts receivable. Currently the firm has an average collection period of 43 days, an average age of inventory of 50 days, and an average payment period of 10 days. The lockbox system will reduce the average collection period by 3 days by reducing processing, mail, and clearing float. The firm's cash conversion cycle

• A) increases by 3 days.
• B) decreases by 3 days.
• C) will not change.
• D) is 93 days.

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