Principles of Corporate Finance
Principles of Corporate Finance
13th Edition
ISBN: 9781260465099
Author: BREALEY, Richard
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 29, Problem 7PS

Cash cycle A firm is considering several policy changes to increase sales. It plans to increase the variety of goods it keeps in inventory, but this will increase inventory by $100,000. It will offer more liberal sales terms, but this will result in receivables increasing by $650,000. These actions are forecasted to increase sales by $8 million a year. Cost of goods sold will remain at 80% of sales. Because of the firm’s increased purchases for its own production needs, payables will increase by $350,000. What effect will these changes have on the firm’s cash cycle?

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