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.

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.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter23: Other Topics In Working Capital Management

Section: Chapter Questions

Problem 3Q

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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.
Which of the following statements is most correct? a. A cash management system that maximizes collections float while minimizing disbursement float is preferable to one that has lower collections float while increasing disbursement float. b. Other things held constant, a firm will need a smaller line of credit if it can arrange to pay its bills by the 5th of each month than if its bills come due uniformly during the month. c. None of the statements are correct. d. The use of a lockbox is intended to reduce cash theft losses. In the event that if the cost of the lockbox is less than the theft losses avoided, the lockbox should be installed. e. A cash management system that minimizes collections float while increasing disbursement float outperforms one with higher collections float but lower disbursement float.
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 is a positive sign that a company can quickly turn its receivables into cash? a. A low receivables turnover ratio.b. A high receivables turnover ratio.c. A low average collection period.d. Both a high receivables turnover ratio and a low average collection period.
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
In the case of decrease the operating cash cycle, which one of the following actions should be taken? A Delay payments to suppliers B Increase the inventory level while maintaining constant salesC Increase the period of time for which credit is granted to customers D Decrease the rate at which the average inventory is sold
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 is false? a. Baumol model helps firm to find out their desirable level of cash balance under certainty b. Any presence of a cash buffer affects the cost of holding cash and ultimately the annual cost of cash for a particular firm c. A higher average daily disbursement float than average daily collection float is more desirable for a firm d. Accounts payable increase the number of days a firm’s resources are tied up in the operating cycle
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.
Choose the INCORRECT one among the following statements a) Increase in the working capital turnover is advantageous for the firmb) Increase in the trade receivables turnover means that trade receivables are collected faster c) Increase in the production period is advantageous for the firmd) The shorter the cash conversion period the more liquid is the firm
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?
Which of the following is true? a. If the payment term of n/20 shifted to 5/10, n/20 to start offering customers a cash discount, assuming sales remain to be constant, the day sales outstanding of the firm will likely shorten b. If a firm’s volume of credit sales decreases, then its liquidity ratios will also decrease. c. Relatively more restrictive credit term as comparing to other firms within the same industry will have a potential increase in sales d. High assets turnover is being reflected by inefficiencies present in the management of inventory