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- How does a short-term cash flow crisis impact a firm's competitive strategy?- 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.Why might stockholders be indifferent to whetheror not a firm reduces the volatility of its cash flows?
- 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?Can a firm have income without also having a positive cash flow? Explain.
- What are the advantages/disadvantages of using the discounted cash flows method of estimating the value of a company?Is a negative free cash flow (FCF) always a bad sign? A negative free cash flow means that the company does not have sufficient internal funds to finance investments in fixed assets and working capital. Is there a scenario where a negative free cash flow is not a bad sign for the company?Explain the theory behind the free cash flow valuation approach. Why are the free cash flows value relevant to common equity shareholders when they are not cash flows to those shareholders, but rather are cash flows into the firm?
- What are the possible actions that a firm can take if it experiences a financial failure?why is knowledge of the money market important for carrying out value maximizing working capital short term management?why are opportunity cost of not taking account the risk return trade off of the various short term instruments?In what circumstances would you choose to use a dividend discount model rather than a free cash flow model to value a firm?