Final answer:
To calculate the length of time between buying and paying, you need to consider the total cost of buying the basket in each time period and use present value calculations.
Step-by-step explanation:
The length of time between buying and paying is an important concept in understanding the cash flow cycle. This calculation is used to determine how quickly a company's investment can be recouped through savings or cash inflows. To calculate the length of time, you need to consider the total cost of buying the basket in each time period.
- Calculate the total cost of buying the basket in each time period.
- Next, add up all the present values for the different time periods to get a final answer.
- Use the present value calculations to determine what the future amount is worth in the present, given the interest rate.