Haha got that wrong my first time as well, didn’t read the question well enough. The question says:
A company extends its trade credit terms by four days to all its credit customers. The most likely effect of this change to the company’s credit customers is a four-day: The question is asking the effect of the change FOR THE CUSTOMERS. So basically, the customers have a longer days payables, therefore a lower net operations cash flow since Net Op CF = Cash conversion cycle = days receivable + days inventory - days payables
If the CUSTOMERS payables have increased, then the COMPANIES Acc Rec have INCREASED? (takes longer for money to come in due to higher customer payables)
Therefore: is this still not DIO +DRO = Higher?
My confusion is in the days payables.
I assume days payable is the COMPANIES payable. Therefore this surely remains unchanged because we are looking t the CUSTOMERS payable???
Or are we looking at the Cycle from the viewpoint of the customer?