Reference no: EM133053082
Which among these statements are TRUE?
1. Operating cycle is the amount of time the firm's cash is tied up between payment for production inputs and receipt of payment from the sale of the resulting finished product.
2. The cash conversion cycle is the difference between the number of days resources are tied up in the operating cycle and the average number of days the firm can delay making payment on the production inputs purchased on credit.
3. When implementing the cash management strategies, a firm should take care to avoid having a large number of inventory stockouts, to avoid losing the use of its cash by collecting its accounts receivable using high-pressure collection techniques, and to avoid damaging the firm's credit rating by overstretching accounts payable.
4. In the economic order quantity model, if carrying costs increase while all other costs remain unchanged, the number of orders placed would be expected to increase.
5. In the EOQ model, the total cost is minimized at the point where the order costs and carrying costs are equal.
6. If the firm's credit period in decreased, the sales volume can be expected to increase, the investment in accounts receivable can be expected to increase, and the bad debt expenses can be expected to increase.
7. A decrease in collection efforts will result in an increase in sales volume, an increase in the investment in accounts receivable, an increase in bad debt expenses, and a decrease in collection expenditures.
8. In giving up a cash discount, the amount of the discount that is given up is the interest being paid by the firm to keep its money by delaying payment for a number of days.
9. A firm should take the cash discount if the firm's cost of borrowing from the bank is greater than the cost of giving up a cash discount.
10. The cost of capital is used to decide whether a proposed corporate investment will increase or decrease the firm's value or stock price.
11. One strength of payback period is that it takes fully into account the time factor in the value of money.
12. The payback period is the estimated amount of time required for the firm to recover the installed cost of a new asset.
13. Everything else being equal, the higher the discount rate, the higher the present value.
14. Everything else being equal, the longer the period of time, the lower the present value.
15. The higher the debt ratio, the more financial leverage a firm has and, thus, the greater will be its risk and return.
16. The current ratio provides a better measure of overall liquidity only when a firm's inventory cannot easily be converted into cash. If inventory is liquid, the quick ratio is a preferred measure of overall liquidity.
17 The vertical analysis involves comparing the firm's ratios to those of firms in other industries at the same point in time.
18. Total asset turnover commonly measures the liquidity of a firm's total assets.
19 The gross profit margin measures the percentage of each peso sales left after the firm has paid for its goods and operating expenses.