Define the cash conversion cycle (CCC) and explain why, holding other things constant, afirm’s profitability would increase if it lowered its CCC.
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Q: cash conversion cycle
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Define the cash conversion cycle (CCC) and explain why, holding other things constant, a
firm’s profitability would increase if it lowered its CCC.
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- When using the NPV method for a particular investment decision, if the present value of all cash Inflows Is greater than the present value of all cash outflows, then _______ . A. the discount rate used was too high B. the investment provides an actual rate of return greater than the discount rate C. the investment provides an actual rate of return equal to the discount rate D. the discount rate is too lowHow would a reduction in the cash conversion cycle increase profitability?What is the cash conversion cycle (CCC)? Whyis it better, other things held constant, to have a shorter rather than a longer CCC? Suppose youknow a company’s annual sales, average inventories, average accounts receivable, average accountspayable, and annual cost of goods sold. How couldyou use that information to determine the company’s CCC? If you also knew its cost of capital, howcould you determine its annual cost of carryingworking capital? How could you determine howmuch the company would save if it could reducethe CCC by, say, 5 days? What are some actions itmight take to reduce the CCC?
- How much is the gross benefit (annual return on the investment of increase in the average cash balance) of the lockbox system?Should the company make the investment and adopt the lockbox system? Yes or nowe can still calculate the IRR on incremental cash flows. True or false? Explain with example?Efficiency Does CEB manage efficiently its working capital (current assets and current liabilities)? (Justify using cash conversion cycle). When comparing the two companies, which between the two is more efficient?
- Mention and explain in brief any two ways for a company to reduce it's cash conversion cycle.. 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?Incremental cash flow is calculated as (cash flowB− cash flowA), where B represents the alternative with the larger initial investment. If the two cash flows were switched wherein B represents the one with the smaller initial investment, which alternative should be selected if the incremental rate of return is 20% and the MARR is 15%? Explain.
- If the sum of the incremental cash flows is negative, what is known about the rate of return on the incremental investment?Does an increase in the long-term growth rate of free cash flowsalways cause an increase in the value of operations? Explain youranswer.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?