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【正文】 19 Copyright 169。 2023 by Harcourt, Inc. All rights reserved. What reasons might SKI have for maintaining a relatively high amount of cash? ?If sales turn out to be considerably less than expected, SKI could face a cash shortfall. ?A pany may choose to hold large amounts of cash if it does not have much faith in its sales forecast, or if it is very conservative. ?The cash may be used, in part, to fund future investments. 16 23 Copyright 169。 2023 by Harcourt, Inc. All rights reserved. If SKI reduces its inventory, without adversely affecting sales, what effect will this have on its cash position? ?Short run: Cash will increase as inventory purchases decline. ?Long run: Company is likely to take steps to reduce its cash holdings. 16 27 Copyright 169。 2023 by Harcourt, Inc. All rights reserved. If SKI succeeds in reducing DSO without adversely affecting sales, what effect would this have on its cash position? ?Short run: If customers pay sooner, this increases cash holdings. ?Long run: Over time, the pany would hopefully invest the cash in more productive assets, or pay it out to shareholders. Both of these actions would increase EVA. 16 31 Copyright 169。 2023 by Harcourt, Inc. All rights reserved. 1. Credit Period: How long to pay? Shorter period reduces DSO and average A/R, but it may discourage sales. 2. Cash Discounts: Lowers price. Attracts new customers and reduces DSO. 3. Credit Standards: Tighter standards tend to reduce sales, but reduce bad debt expense. Fewer bad debts reduce DSO. 4. Collection Policy: How tough? Tougher policy will reduce DSO but may damage customer relationships. Elements of Credit Policy 16 29 Copyright 169。 2023 by Harcourt, Inc. All rights reserved. ?Costs of Running Short: Loss of sales, loss of customer goodwill, and the disruption of production schedules. Reducing the average amount of inventory generally reduces carrying costs, increases ordering costs, and may increase the costs of running short. 16 25 Copyright 169。 2023 by Harcourt, Inc. All rights reserved. How could bad debts be w
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