- How would a reduction in the cash conversion cycle increase profitability? What are some 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 working capital to be negative)? Explain why or why not. If there exists a firm with negative CCC, give an example, what are characteristics of such company.

Q: One of the indirect costs of financial distress is having to sell assets at lower than market value.…

A: Indirect costs of financial distress is not the directly present cost in the financial statements…

Q: Explain, with examples, why accruals reverse overstate the firm's profit.

A: Aggressive accounting is related to the practice of accounting which is designed in order to…

Q: How does a firm evaluate if it has too many or too few current assets vs. its current liabilities?…

A: A firm evaluate if it has too many or too few current assets vs. its current liabilities by…

Q: Is a negative free cash flow (FCF) always a bad sign? A negative free cash flow means that the…

A: Yes. Negative free cash flow is not necessarily bad. Most rapidly growing companies have negative…

Q: If the firm utilizes a cash basis rather than the accrual basis accounting methodology, all else…

A: If the firm utilizes a cash basis rather than the accrual basis accounting methodology, all else…

Q: Which of the following methods can NOT be used to improve the firm’s cash conversion cycle?…

A: Cash conversion cycle (CCC) expresses the length of time, in days, that it takes for a company to…

Q: Why is the total cost of bringing a general cash offer to the market lower than an IPO

A: Initial Public Offering (IPO) is the sale of stock by a company for the first time. Under this…

Q: If an investment project will positively affect the cash flows of other products the firm currently…

A: Cannibalization can be defined as the negative effect on the existing business line or the product…

Q: Explain how capital adequacy requirements may affect a commercial bank’s dividend payout and growth…

A: Capital adequacy requirement refers to the amount of capital a bank must have as per the requirement…

Q: If a company lowers its cash dividend payment, does that always send a bad signal? If not, provide…

A: Every company receives their capital in the form of equity or debt. Equity is from the shareholders…

Q: 1. Can a firm with positive net income run cash? Explain.

A: Cash is very important in the business and there is need of cash in business and no business can…

Q: How does a short-term cash flow crisis impact a firm's competitive strategy?

A: It is very important for any business to have cash in hand or at the bank for meeting day-to-day…

Q: What contrasts are there between what is shown in cash flow statements and the need for firms to…

A: Cash flow statement is prepared on cash basis and it shows the actual cash position of the company.…

Q: The main lesson to be learned from the Modigliani and Miller theory of capital structure assuming…

A: Modigliani – Miller theory has following assumptions- There exist a perfect capital market, and…

Q: If you do not have past data to generate cash flows forecasting, which approach should you adopt for…

A: Valuing a new non-public company without past data for cash flow forecasting can be a challenging…

Q: 3. Which of the following statements is false about the agency costs of free cash flow (FCF)?…

A: The agency costs of free cash flow (FCF) refer to the costs associated with managerial discretion…

Q: Which of the following explains why relative valuation is preferred over intrinsic valuation?  a.…

A: Stock valuation: It is the process of analyzing the prices of stock before investing in it. The…

Q: Explain "frce cash flows. Why do managers like to retain free cash flows instead of distributing it…

A: Free cash flows : As the name suggests, free cash flows relates to the fund that are leftover to a…

Q: Which of the following statement on the firm's net working capital is incorrect? A. Holding other…

A: Formula for net working capital is current assets - Current liabilities.

Q: Why might one firm have positive cash flows and be headed for financial trouble, whereas another…

A: One firm might have positive cash flows and be headed for financial trouble if it is not generating…

Q: Suppose the management of a firm is trying to allocate liquid assets to two accounts, one of which…

A: The ratio of investment typically refers to the proportion of funds allocated to different assets…

Q: Question1. Arbitrage is limited because the wealth of arbitrageurs is limited.  Discuss this…

A: 1. Arbitrage, the practice of exploiting price differences of identical or similar financial…