Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN: 9781337395083
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Question
Chapter 21, Problem 8MC
Summary Introduction
Case summary:
Chief financing officer of Company RR, a speciality coffee manufacturer, is re-thinking about its working capital policy and wants to re-new its line of credit and it wouldn’t ready to build payroll, probably forcing the company out of business.
The scare has forced the company to examine carefully about each component of working capital to make sure it is required, and decide whether the goal is to determine the line of credit are often eliminated entirely.
Previously, it has done little to look at assets and mainly because of poor communication among business functions and the decisions about working capital cannot be made at vacuum.
To discuss: Effect of reducing DSO by firm without affecting sales on its
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. 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?
- 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.
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.
Chapter 21 Solutions
Intermediate Financial Management (MindTap Course List)
Ch. 21 - a. Working capital; net working capital; net...Ch. 21 - Prob. 2QCh. 21 - Is it true that, when one firm sells to another on...Ch. 21 - What are the four elements of a firm’s credit...Ch. 21 - Prob. 5QCh. 21 - Prob. 6QCh. 21 - Prob. 7QCh. 21 - Is it true that most firms are able to obtain some...Ch. 21 - What kinds of firms use commercial paper?Ch. 21 - Prob. 1P
Ch. 21 - Medwig Corporation has a DSO of 17 days. The...Ch. 21 - What are the nominal and effective costs of trade...Ch. 21 - A large retailer obtains merchandise under the...Ch. 21 - A chain of appliance stores, APP Corporation,...Ch. 21 - Prob. 6PCh. 21 - Calculate the nominal annual cost of nonfree trade...Ch. 21 - If a firm buys on terms of 3/15, net 45, but...Ch. 21 - Grunewald Industries sells on terms of 2/10, net...Ch. 21 - The D.J. Masson Corporation needs to raise...Ch. 21 - Negus Enterprises has an inventory conversion...Ch. 21 - Strickler Technology is considering changes in its...Ch. 21 - Payne Products had $1.6 million in sales revenues...Ch. 21 - Dorothy Koehl recently leased space in the...Ch. 21 - Suppose a firm makes purchases of $3.65 million...Ch. 21 - The Thompson Corporation projects an increase in...Ch. 21 - The Raattama Corporation had sales of $3.5 million...Ch. 21 - Karen Johnson, CFO for Raucous Roasters (RR), a...Ch. 21 - Prob. 2MCCh. 21 - Prob. 3MCCh. 21 - Prob. 4MCCh. 21 - Prob. 5MCCh. 21 - Prob. 6MCCh. 21 - Prob. 7MCCh. 21 - Prob. 8MCCh. 21 - What is the impact of higher levels of accruals,...Ch. 21 - Prob. 10MCCh. 21 - Prob. 11MCCh. 21 - Prob. 12MCCh. 21 - Prob. 13MCCh. 21 - Prob. 14MCCh. 21 - Prob. 15MCCh. 21 - Prob. 16MC
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- 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.arrow_forwardWhat are the advantages/disadvantages of using the discounted cash flows method of estimating the value of a company?arrow_forwardWhat are some tools that companies have to manage their (net operating) working capital? Provide examples of inventory and receivables management techniques. What is the Cash Conversion Cycle and why is this a useful metric? Are there risks if this is too low?arrow_forward
- Suppose a company’s return on invested capital is less than itsWACC. What happens to the value of operations if the salesgrowth rate increases?arrow_forwardThe 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 ratioarrow_forwardIs this statement true or false? please explain in detail The Discounted Cash Flow method is the one of best ways to assess the impact of a major investment in an alternative production lay out, as the gains efficiency will be counterbalanced by changes in in inventory levelsarrow_forward
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