Chapter Questions
What are some of the characteristics of a firm with a long operating cycle?
What are some of the characteristics of a firm with a long cash cycle?
For the year just ended, you have gathered the following information about the Holly Corporation:a. A $$\$200$$ dividend was paid.b. Accounts payable increased by $$\$ 500$$.c. Fixed asset purchases were $$\$ 900$$.d. Inventories increased by $$\$ 625$$.e. Long-term debt decreased by $$\$ 1,200$$.Label each as a source or use of cash and describe its effect on the firm's cash balance.
Loftis Manufacturing, Inc., has recently installed a justin-time (JIT) inventory system. Describe the effect this is likely to have on the company's carrying costs, shortage costs, and operating cycle.
Is it possible for a firm's cash cycle to be longer than its operating cycle? Explain why or why not. Use the following information to answer Questions 6-10: Last month, BlueSky Airline announced that it would stretch out its bill payments to 45 days from 30 days. The reason given was that the company wanted to "control costs and optimize cash flow." The increased payables period will be in effect for all of the company's 4,000 suppliers.
What impact did this change in payables policy have on BlueSky's operating cycle? Its cash cycle?
What impact did the announcement have on BlueSky's suppliers?
Is it ethical for large firms to unilaterally lengthen their payables periods, particularly when dealing with smaller suppliers?
Why don't all firms simply increase their payables periods to shorten their cash cycles?
BlueSky lengthened its payables period to "control costs and optimize