Suppose that a company\'s days sales outstanding (DSO) increased from 85 days to
ID: 2813474 • Letter: S
Question
Suppose that a company's days sales outstanding (DSO) increased from 85 days to 95 days. Which of the following will occur, all else being equal?
The company will appear to be more liquid as measured by its CCP.
The company will appear to be less liquid as measured by its CCP.
The company's CCP will remain unchanged.
Cannot be determined.
Which of the following is likely to increase a company's liquidity?
repurchasing stock with cash on hand.
selling bonds and holding the proceeds as cash.
buying bonds with cash on hand.
increasing dividend payments to common shareholders.
Suppose a company is concerned about its short term liquidity. Which of the following actions could help alleviate liquidity concerns?
An increased usage of short term debt.
A shift from short term debt financing to long term debt financing.
Repurchase its shares in the open market.
All of the above.
DEF Corp. believes its daily NPV will increase by $900 if it offers more lenient credit terms to its customers. DEF uses a 3% cost of capital for credit policy decisions. If the increased daily NPV continues indefinitely, what is the aggregate NPV of the decision to lower the company's credit standards? Assume a 365-day year.
24,200
11,315,000
30,000
10,950,000
The company will appear to be more liquid as measured by its CCP.
The company will appear to be less liquid as measured by its CCP.
The company's CCP will remain unchanged.
Cannot be determined.
Which of the following is likely to increase a company's liquidity?
repurchasing stock with cash on hand.
selling bonds and holding the proceeds as cash.
buying bonds with cash on hand.
increasing dividend payments to common shareholders.
Explanation / Answer
1) Option 2
The cpmpany will appear to be less liquid. because lesses the credit period , the accounts receivables are considered to be more liquid. That is immediately convertible into cash
2) Option 2
All other option reduces the current asset ( cash) . Option 2 increases cash . It will create a current liability of "current maturity of long term assets" . But it is lower than the increase in cash
3) Option 2
Long term debt is repayable over years. So the current liability will be a portion of that only. Short term debt will increase current liability for the entire debt amount
4) option 4
Daily interest rate = 0.03/365 =0.00008219
Aggregate NPV = 900/0.00008219 (equation for perpetual Cash flows)
= 10950237
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