Question

Other things held constant, which of the following alternatives would increase a company's cash flow for the current year?
a. Increase the number of years over which fixed assets are depreciated for tax purposes.
b. Pay down the accounts payables.
c. Reduce the days' sales outstanding (DSO) without affecting sales or operating costs.
d. Pay workers more frequently to decrease the accrued wages balance.
e. Reduce the inventory turnover ratio without affecting sales or operating costs.

Answer 1

Answer:

The answer is C

Explanation:

Cash flow improves if days' sales outstanding is reduced without affecting sales or operating cost. This tells us that the number of days it takes to receive goods sold on credit is reduced. Cash flow will be immensely improved because customers are not defaulting and they are paying as soon as possible. The correct answer is option C.

Option B is wrong because paying payables down will not allow the money paid out to be used for other purposes. The firm is not utilizing the period of payable days.

Option D is wrong because paying workers more frequently reduces cash.