State what can be done to shorten the cash conversion cycle

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Reference no: EM13217246

Please answer the 3 questions below in a short essay. 1 page at a minimum for each question. Use an example to illustrate the point. You are writing for someone who know nothing of the subject. Tell them what they need to understand to understand the subject. Does not need citing. There are some items that need to be included which are included under each question.

1. What can be done to shorten the cash conversion cycle? What is the benefit to the firm from doing so? (Provide math example).

Follow the cash going out to the cash coming back in
Ideally 0 for working capital
Use more JIT inventory
Change production line and add 2nd shift

2. Why would a company prefer commercial paper to a bank loan? What are the risks? (Provide math example)

Short term loan paid in 30, 60 or 90 days. Referred as hot money with no loyality
Loaned without the bank adding its 3 percent so desireable but if bad news hits the investors they will want their money back now

3. Why would a company prefer to lease instead of buy an asset? What is the downside?

Do math using formula "purchase cost + maintenance / monthly lease cost
Lease short term, buy long term,
Purchase cost & maintenance and monthly cost are included
Operating lease comes with maintenance

Reference no: EM13217246

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