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Conversion cycle and credit policy

Question 18
Which of the following statements is CORRECT?

a. Other things held constant, it is better to have a relatively short than a relatively long cash conversion cycle.
b. Other things held constant, it is better to have a relatively long than a relatively short cash conversion cycle.
c. Other things held constant, the length of the cash conversion cycle has no effect on a firmâ??s profitability.
d. Other things held constant, the length of the cash conversion cycle might have an effect on a firmâ??s profitability, but it is impossible to state if that effect is positive or negative.
e. Since firms have no control over their cash conversion cycles, there is little point in studying these cycles.

Question 21
Since easing the credit policy generally lengthens the collection period and worsens the aging schedule, why do firms ever ease their credit policies?

a. Easing normally stimulates sales.
b. Easing helps them collect on sales quicker.
c. Easing increases the deferral period for payables.
d. Easing decreases the current ratio.
e. Easing decreases the DSO.

Solution Preview

Question 18
Which of the following statements is CORRECT?

a. Other things held constant, it ...

Solution Summary

This post has two queries discusses about conversion cycle and credit policies.

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