Which of the Following Actions Would Be Likely to Shorten

question 45

Multiple Choice

Which of the following actions would be likely to shorten the cash conversion cycle?

• A) change the credit terms offered to customers from 3/10 net 30 to 1/10 net 50.
• B) begin to take cash discounts on inventory purchases; the terms are 2/10 net 30.
• C) adopt a new manufacturing process that saves some labor costs but slows down the conversion of raw materials to finished goods from 10 days to 20 days.
• D) change the credit terms offered to customers from 2/10 net 30 to 1/10 net 60.
• E) adopt a new manufacturing process that speeds up the conversion of raw materials to finished goods from 20 days to 10 days.

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Definitions:

Present Value

The current value of a future amount of money or stream of cash flows given a specified rate of return.

Cash Inflows

The total amount of money entering a company, typically from operations, financing, and investing activities.

Rate of Return

A measure of the profitability of an investment, indicating the percentage of invested money gained or lost relative to its initial cost.

Capital Budgeting Technique

Methods used to evaluate and select long-term investments based on potential for profit and alignment with strategic goals, such as NPV or IRR.