Trade credit

1. Does an increase in a firm’s cash cycle necessarily mean that the firm is managing its cash poorly?

2. Why is trade credit important?

3. What are the ways that receivables management can affect a firm’s value?

1. Homer Boats has accounts payable days of 20, inventory days of 50, and accounts receivable days of 30. What is its operating cycle?

2. FastChips Semicºnductors has inventory days of 75, accounts receivable days of 30, and accounts payable days of 90. What is its cash conversion cycle?

Solution:

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