- How would a reduction in the cash conversion cycle increase profitability? What are some 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 working capital to be negative)? Explain why or why not. If there exists a firm with negative CCC, give an example, what are characteristics of such company.

- How would a reduction in the cash conversion cycle increase profitability? What are some 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 working capital to be negative)? Explain why or why not. If there exists a firm with negative CCC, give an example, what are characteristics of such company.

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

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Similar questions

Why is it important for a firm to minimize the length of its cash conversion cycle (CCC)? How can the firm minimize it? What are the strategies that the firm should consider while trying to minimize the CCC?
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.
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?
What does a negative value for unlevered free cash flow imply for the claimants of a firm?
Two firms- A and B- have same cash conversion cycle. But firm A have poor inventory conversion period but better fixed asset turnover than firm B. How you think firm A should do to reduce cash conversion cycle than firm B.
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 a. Increase of return on marketable securities b. None of the choices is correct c. Increase in the annual demand for cash d. Decrease of debt to asset ratio
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
A disadvantage of using the payback period to compare investment alternatives is that it a. Ignores cash flows beyond the payback period. b. Cannot be used to compare alternatives with different initial investments. c. Cannot be used when cash flows are not uniform. d. Involves the time value of money. e. Cannot be used if a company records depreciation.
Why is the total cost of bringing a general cash offer to the market lower than an IPO
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Which of the following is NOT a conclusion drawn from M&M's Propositions 1 and 2? a. Shareholder's required return rises with leverage. b. The WACC does not change as capital structure change. c. Firm value is determined by the left hand of the balance sheet the firm's assets, and the cash flow generated by them. d. The WACC is determined by the riskiness of the company's business (assets). e. A firm can change its market value by splitting its cash flows into different streams.
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