Answered: . If the company reduces its DSO…

. If the company reduces its DSO without seriouslyaffecting sales, what effect would this have onfree cash flow (1) in the short run and (2) in thelong run?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter21: Supply Chains And Working Capital Management

Section: Chapter Questions

Problem 8MC

See similar textbooks

Related questions

Q: Which of the following actions should Paperang Inc. take if it wants to reduce its cash conversion…

A: Cash conversion cycle is that the total period of time taken by the firm to finish its operating…

Q: Which of the following statements is CORRECT? a. One drawback of EVA as a performance measure is…

A: The question is related to Economic Value Added. The Economic Value Added (EVA) EVA as a residual…

Q: Define the following terms: inventory conversion period, average collection period, and payables…

A: All the transactions of the company that are happened during the year will be recorded first in the…

Q: Why is the quick ratio considered by some to be a better measure of liquidity than the current…

A: The quick ratio examines a company's short-term liquidity position and assesses its ability to meet…

Q: Is this statement true or false? Please explain in detail Companies should always finance projects…

A: Return on investment or ROI is referred as the financial metric, which measures the probability for…

Q: Two firms- A and B- have same cash conversion cycle. But firm A have poor inventory conversion…

A: CCC stands for Cash Conversion Cycle is defined as the metric which states the time it requires the…

Q: Suppose a firm makes the following policy changes. If the change means that external…

A: As the AFN increases, the sales of a company will increase that leads to increase in profit margin…

Q: How would a reduction in the cash conversion cycle increase profitability?

A: Cash conversion cycle (CCC): It is a metric that speaks to the time it takes for a business…

Q: Which of the following situation is better for the company? O a. All of these O b. Cash conversion…

A: The cash conversion cycle (CCC) is the days of inventory plus the days of receivable less the days…

Q: Is this statement true or false? please explain in detail The Discounted Cash Flow method is the…

A: The value of an investment is calculated using the discounted cash flow (DCF) approach based on the…

Q: suppose a company's return on invested capital is less than its wacc. what happens to the value of…

A: Return on invested capital (ROIC) is defined as an amount of the funds, which used to make by the…

Q: nds that it can draw on. o reduce collection time t wear to operate.

A: Lock box is a system where that can be utilized to reduce the time between customer sending a check…

Q: If an investment project will positively affect the cash flows of other products the firm currently…

A: Cannibalization can be defined as the negative effect on the existing business line or the product…

Q: Negative net operating income implies a negative free cash flow investors. True or false

A: Cash flow statement is the cash inflows and outflows during the year. It includes all the…

Q: If a company lowers its cash dividend payment, does that always send a bad signal? If not, provide…

A: Every company receives their capital in the form of equity or debt. Equity is from the shareholders…

Q: Which of the following is true? O If a firm's volume of credit sales decreases, then its liquidity…

A: Following is the correct option.

Q: What is the effect of changes in cash flows, investment cost and cash outflows on profitability…

A: Profitability Index is the ratio that is resulted from dividing the current worth of subsequent year…

Q: Does an increase in the long-term growth rate of free cash flowsalways cause an increase in the…

A: Free cash flows are cash flows that are generated within the company from its operating activities…

Q: How can a company’s operations generate a healthy profitand yet produce meager or even negative cash…

Q: Which of the following actions should Reece Windows take if it wants to reduce its cash conversion…

A: The cash conversion cycle includes the days allowed to the accounts receivable plus inventory days…

Q: Why would a company choose to factor itsreceivables, given that it will get less money than…

A: Sales means delivery of goods and services by the seller. It can be for cash sales or sales made on…

Q: cash conversion cycle

A: Cash conversion cycle is a metric that the company uses to measure the time that it would take to…

Q: Which of the following decisions do NOT influence the cash from operating activities slide? Which…

A: Operating Activities are company core business activities such as manufacturing , distributing ,…

Q: True or False Sales projections and the ability to accurately predict the future have a large…

A: The sales projections and ability to accurately predict the future helps management to estimate the…

Q: If you encourage your customers to pay you sooner, the cash conversion cycle will O get shorter O…

A: The cash conversion cycle is the number of days in which an inventory gets converted into cash. The…

Q: a. Calculate the accounting break-even point. What is the degree of operating leverage at the…

A: a. Calculate the accounting break-even point by dividing the fixed cost (FC) which is $900,000 by…

Q: 3. If inventory turnover decreases, what will happen to the cash conversion cycle? Assume other…

A: Inventory Turnover ratio shows how many times inventory is sold in any particular period. Cash…

Q: A cash flow strategy that can be used by a company is to swap short-term debt for long-term debt.…

A: Cash flow is the amount of money that comes in and out of your business. When you earn more than you…

Q: What would happen to a company if it ran out of cash? Explain the importance of good working capital…

A: Working capital is excess amout of current assets over current liabilities. Cash conversation cycle…

Q: Assuming the firm’s sales volume remained constant, would you expect it tohave a higher cash balance…

Q: What are some actions a firm can take to shorten its cash conversion cycle?

A: The cash conversion cycle is the time period between the out flow of cash for purchasing raw…

Q: Can management of a company such as Samsung use the cash conversion cycle as a useful measure of…

Q: Is the following sentence true or false? Please explain.…

A: Cost of equity is the return paid to the shareholders by the company for taking the risk by…

Q: What are some tools that companies have to manage their (net operating) working capital? Provide…

A: Net operating WC = CA - CL (current assets - current liabilities) The components of working capital…

Q: According to the Liquidity Preferences Model, these are the expected first impact (short run) coming…

A: Liquidity preference hypothesis could be a demonstrate that proposes that a speculator ought to…

Q: Which scenario would be considered the most favorable by shareholders of a company? Select one: a.…

A: The net earnings after all debt obligations, tax paid to government and dividend paid to preference…

Q: What is the stuitable strategy to do for, Operating cash does not cover debt, PE Ratio, EPS Ratio,…

A: Debt interest is a financial burden which needs to be paid even if the company does not have…

Q: m wants to increase its working capital efficiency, it should: Increase its da

A: Introduction: Working Capital is day to day expense requirement of the organization. It is the…

Q: A firm wants to reduce its cash conversion cycle sharply. Which of the following actions should it…

A: Cash conversion cycle is an important metric used in finance. Essentially this metric determines the…

Q: All else being equal, a company would choose to invest in a capital asset if which of the following…

A: Answer: If the expected accounting rate of return is greater than the required rate of return.

Q: f the following is false? a. Baumol model helps firm to find out their desirable level of cash…

A: Account payable are the amount of money to be given to the suppliers and creditors who provides…

Q: Define the cash conversion cycle (CCC) and explain why, holding other things constant, afirm’s…

A: Cash conversion cycle (CCC) is the cycle which converts the investments made into raw material and…

Question

. If the company reduces its DSO without seriously
affecting sales, what effect would this have on
free cash flow (1) in the short run and (2) in the
long run?

Definition Definition Cash that is left over after a company has paid for its operating and capital expenses. Unlike net income or earnings, free cash flow excludes non-cash expenses of the income statement and includes the expenditures on equipment and assets. Free cash flow also helps potential shareholders to evaluate how quickly the company can pay interest and dividends.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Which one of the following statements is correct? A. If a firm decreases its inventory period, its accounts receivable period will also decrease. B. The longer the cash cycle, the more cash a firm typically has available to invest. C. A firm would prefer a negative cash cycle over a positive cash cycle. D. Decreasing the inventory period will also decrease the payables period. E. Both the operating cycle and the cash cycle must be positive values.
- How would a reduction in the cash conversion cycle increase profitability? What aresome actions a firm can take to shorten its cash conversion cycle?- Is it possible for a firm’s cash conversion cycle to be negative (or net operating workingcapital to be negative)? Explain why or why not. If there exists a firm with negativeCCC, give an example, what are characteristics of such company.
Suppose a company’s return on invested capital is less than itsWACC. What happens to the value of operations if the salesgrowth rate increases? Explain your answer.
Assuming the firm’s sales volume remained constant, would you expect it tohave a higher cash balance during a tight-money period or during an easymoney period? Why?
Which of the following methods can NOT be used to improve the firm’s cash conversion cycle? Decrease the firm’s inventory conversion cycle. Decrease the firm’s receivables collection period. Decrease the firm’s payables deferral period. Increase the firm’s payables deferral period.
Suppose a company’s return on invested capital is less than itsWACC. What happens to the value of operations if the salesgrowth rate increases?
Practice : a: The computation of return on average investment ignores one characteristic of the earnings stream, which is considered in discounting cash flows. What is this characteristic? Why is it important? b: What are the disadvantages of evaluating an investment using payback period? Why might a company use this methodology despite these disadvantages?
How can a company’s operations generate a healthy profitand yet produce meager or even negative cash flows?
Why would a company choose to factor itsreceivables, given that it will get less money than thereceivables are worth?
The company’s usage of the Baumol model in cash management involves trade-off. A decrease in the optimal transaction size would more likely result from Decrease of debt to asset ratio Increase of return on marketable securities None of the choices is correct Increase in the annual demand for cash
Which of the following actions should Reece Windows take if it wants to reduce its cash conversion cycle? a. Take steps to reduce the DSO. b. Sell an issue of long-term bonds and use the proceeds to buy back some of its common stock. c. Increase average inventory without increasing sales. d. Sell common stock to retire long-term bonds. e. Start paying its bills sooner, which would reduce the average accounts payable but not affect sales.
Define the cash conversion cycle (CCC) and explain why, holding other things constant, afirm’s profitability would increase if it lowered its CCC.