1. Other things held constant, which of the following would tend to reduce the cash conversion cycle?

Answer

Carry a constant amount of receivables as sales decline. Place larger orders for raw materials to take advantage of price breaks. Take all discounts that are offered. Continue to take all discounts that are offered and pay on the net date.

Offer longer payment terms to customers.

Question 2

Which of the following statements is NOT CORRECT?

Commercial paper can be issued by virtually any firm so long as it is willing to pay the going interest rate.

Accruals are "free" in the sense that no explicit interest is paid on these funds.

A conservative approach to working capital management will result in most if not all permanent current operating assets being financed with long-term capital.

The risk to a firm that borrows with short-term credit is usually greater than if it

borrowed using long-term debt. This added risk stems from the greater variability of interest costs on short-term debt and possible difficulties with rolling over short-term debt.