Question

The following table shows the operating cycle of four companies.

Company Name. Smith. Jones Brown Green
Operating Cycle. 48 days 42 days 51 days 46 days
All other things being equal, the cost of borrowing money to purchase and hold inventory will be greater for:
Muatiple Choice:
A. Brown.
B. Smith
C. Green
D.Jonez

Answer 1

The cost of borrowing money to purchase and hold inventory will be greater for Company B (Smith) with a 48-day operating cycle. Option b.

Step-by-step explanation:

The cost of borrowing money to purchase and hold inventory will be greater for Company B (Smith).

The operating cycle is the time it takes for a company to convert its cash into inventory, sell the inventory, and then receive cash from the sale. Generally, the longer the operating cycle, the more time and money a company needs to invest in its inventory.

Comparing the operating cycle lengths of the four companies, we can see that Company B (Smith) has the longest operating cycle of 48 days. This means that Company B takes longer to sell its inventory and receive the cash. As a result, Company B will need to hold the inventory for a longer period and incur a higher cost of borrowing money to finance the inventory.