Stretching AP payments out beyond their due date can add to positive cash flow. But, at...

Stretching AP payments out beyond their due date can add to positive cash flow. But, at some point, vendors become nervous and begin to demand their payment. How do you know when you have gone too far? What are the warning signs? What are the consequences of delaying AP payments too far?

Expert Solution

Delaying of account payment will help the firm by increasing the net working capital due to lagging of the payments.

There are certain points beyond which payment should not be stretched, because the vendors will be becoming nervous and they will be refraining from providing with any credit in the future, as this could be reflected through various warning signs as follows-

A. They will be continuously making repeated attempts to collect their account payables

B. They would be refraining from issuing fresh credit

C. They would be trying to charge a higher rate of interest than other parties

D. They would be trying to make their debt collateralised.

Delaying of accounts payables can lead to getting off credit at higher rate of interest and there should be various restrictions and time frame within which fresh credits are to be repaid and it can also impact the relationship between vendor and supplier with the company .

jeff jeffy answered 1 year ago

1. Date Cash Flow Balance

1. Date Cash Flow Balance 7/1 Begin 2,150 7/31 ------ 2,280 8/1 $180 2,460 8/31 ------ 2,561 9/1 $100 2,661 9/30 End 2,500 Calculate the average monthly percent rate of return using the time-weighted method over the three months provided here round your answer to 3 decimals in the form 0.000 2. Date Cash Flow Balance 7/1 Begin 2,150 7/31 ------ 2,280 8/1 ...

Exposure to interest rate or currency movements can add to the volatility of free cash flow....

Exposure to interest rate or currency movements can add to the volatility of free cash flow. Would that add or subtract from the value of a firm? Why? If an increase in interest rates would be costly, how might management reduce that risk? If a rise in the value of the euro over the next six months would eliminate any profits from importing French wine, what might a U.S. wine importer do to avoid those losses?

The cash flow from operations and cash flow from investing are both positive. Which of the...

The cash flow from operations and cash flow from investing are both positive. Which of the following best describes the situation? 2004 2005 Net income $189 $170 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 201 173 Deferred income taxes 14 (20) Restructuring charges 80 90 Accounts receivable 30 20 Inventory (30) 50 Current liabilities 10 30 Cash flow from operations 494 513 Sale of equipment 200 300 Purchase of equipment (130) (120)...

Explain how a company could have a positive net income and negative cash flow? How can...

Explain how a company could have a positive net income and negative cash flow? How can they have negative net income and positive cash flow? Which measurement is most important to stakeholders? Which is less subject to manipulation?

Can this be written out please, for my Bath Uni homework. Cash Flow Analysis. You are...

Can this be written out please, for my Bath Uni homework. Cash Flow Analysis. You are considering a 5-year investment project which is expected to cost $1, 000, 000. In each year, you have decided that there are 3 possible states of the economy: good, average, and poor. In each individual year there is a 35% chance of the economy being good and a 15% chance of it being poor. You forecast the following net cash flows for the project:...

You can determine a company's cash situation by analyzing the cash flow statement. The cash flow ...

You can determine a company's cash situation by analyzing the cash flow statement. The cash flow statement also helps determine whether the company (1) is generating enough cash from its operations to make new investments and pay dividends or (2) will need to generate cash by issuing new debt or selling its assets. A firm has $100 million in revenues. Does that mean it has generated a cash flow of $100 million? No Yes Three categories of activities (operating, investing, and financing) generate or...

The following statements are related to the cash flow statement: i. Cash payments for interest expenses...

The following statements are related to the cash flow statement: i. Cash payments for interest expenses can be classified into operating or investing activities ii. Cash payments for dividends can be classified into operating or financing activities. iii. Cash receipts from dividends can be classified into operating or financing activities iv. Cash receipts from interest income can be grouped into operating or investing activities The correct statement is .... A. i, ii, iii, and iv B. i, ii, and iii...

1.An annuity due is a series of equal cash flows where a cash flow occurs at...

1.An annuity due is a series of equal cash flows where a cash flow occurs at the end of each period. True or False 2.The effective annual rate (EAR) will equal the annual percentage rate (APR) if interest is compounded annually. True or Flase

Due to Covid-19, a business owned by Mr. Nathan is currently facing cash flow problems due...

Due to Covid-19, a business owned by Mr. Nathan is currently facing cash flow problems due to poor sales and the ongoing obligations to pay salaries. Furthermore, due to the extreme weather conditions, one of the business's warehouse was inundated with floodwater causing thousands of ringgit of losses to the inventory. As Nathan's insurance advisor, the student is required to advise on the risk management steps to mitigate the risk of ill health and accidents among the company's employees during...

Can free cash flow be a negative number? What does a lack of free cash flow...

Can free cash flow be a negative number? What does a lack of free cash flow indicate for a business? Please indicate why free cash flow may be a better indicator than Cash Flows from Operating Activities of financial strength.

Question