Cash Conversion Cycle
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Conversion Cycle. What effect will the following have on the cash conversion cycle?
a. Customers are given a larger discount for cash transactions.
b. The inventory turnover ratio falls from 8 to 6.
c. New technology streamlines the production process.
d. The firm adopts a policy of reducing outstanding accounts payable.
e. The firm starts producing more goods in response to customers' advance orders instead
of producing for inventory.
f. A temporary glut in the commodity market induces the firm to stock up on raw materials
while prices are low.
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Solution Summary
The solution explains the effect on cash conversion cycle of various actions taken by the company
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The cash conversion cycle is - Accounts Receivable Period + Inventory Period - Accounts Payable Period.
a. If cash discount is increased, customers may prefer to pay cash then to take credit. The Accounts Receivable would fall and ...
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