Which of the following is a risk of reducing Days Inventory Outstanding (DIO) too much, in an effort to reduce the Cash Conversion Cycle?

Group of answer choices

It can lead to inventory shortages which may drive customers to competitors

Due to the snapback effect, the Cash Conversion Cycle could unexpectedly triple

Customers may be upset that the firm has an aggressive debt collection process

Many customers may be turned away due to the restrictions on international shipping

Which of the following is a risk of reducing Days Sales Outstanding (DSO) too much, in an effort to reduce the Cash Conversion Cycle?

Group of answer choices

It can lead to inventory shortages which may drive customers to competitors

Due to the snapback effect, the Cash Conversion Cycle could unexpectedly triple

Customers may be upset that the firm has an aggressive debt collection process

Many customers may be turned away due to the restrictions on international shipping

Firms that face greater uncertainty in operations should follow a riskier and more aggressive (restricted) current asset investment policy.

Group of answer choices

True

False

Which of these statements regarding short-term debt versus long-term debt is TRUE?

Group of answer choices

Short-term loans take longer to obtain than long-term loans

If needs for funds are seasonal or cyclical, a firm should commit itself to long-term debt

Interest rates are generally higher on short-term debt

Short-term debt requires much more extensive credit checks than long-term debt

Borrowing on a long-term basis results in interest costs that are more stable (predictable) over time

_______________ is an inexpensive source of short-term financing often relied upon heavily by smaller companies.

Group of answer choices

Days Inventory Outstanding

Preferred stock

The Cash Conversion Cycle

Accounts payable (trade credit)

A revolving line of credit

Companies have very high levels of control over the level of their accruals, which makes accruals an attractive source of short-term financing.

Group of answer choices

True

False

Which of the following accounts will NOT rise spontaneously with an increase in sales?

Group of answer choices

Accounts payable

Accrued wages

Long-term debt

Tax liability

Accounts receivable