Which of the Following Are Potential Problems Faced by a Firm

question 21

Multiple Choice

Which of the following are potential problems faced by a firm that wants to provide warranties for its lawnmowers? (Select all that apply.)

• A) a moral hazard problem might arise, in that homeowners may be less careful with the mower, since they can always return it if it breaks.
• B) the warranty may select for homeowners that don't have a lot of mowing to do, or have smooth lawns, because they won't have to pay as much for a warranty.
• C) the warranty will increase demand by assuring customers of the product's quality.
• D) the warranty will reduce demand because only makers of low-quality goods would need to reassure consumers in this way.

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Definitions:

Cash Conversion Cycle

A metric that expresses the duration (in days) it takes for a company to convert its investments in inventory and other resources into cash flows from sales.

DSO

Days Sales Outstanding, a measure of the average number of days that a company takes to collect revenue after a sale has been made.

Average Inventory

It is the mean value of inventory within a specific period, calculated to help understand inventory levels and manage them effectively.

Cash Budget

A cash budget is a financial plan that estimates cash inflows and outflows over a specified period, often used by businesses to manage liquidity.