Question at position 57 A firm reduces DSO from 60 days to 40 days while sales remain unchanged. Most direct impact:Decrease in net working capitalIncrease in depreciationDecrease in EBITIncrease in WACC单项选择题
A
Decrease in net working capital
B
Increase in depreciation
C
Decrease in EBIT
D
Increase in WACC

Question

Question at position 57 A firm reduces DSO from 60 days to 40 days while sales remain unchanged. Most direct impact:Decrease in net working capitalIncrease in depreciationDecrease in EBITIncrease in WACC单项选择题

A

Decrease in net working capital

B

Increase in depreciation

C

Decrease in EBIT

D

Increase in WACC

BlackTom AI · Accepted Answer

Days Sales Outstanding (DSO) measures the average number of days it takes a firm to collect cash from credit sales. Because accounts receivable (AR) = Annual Sales × (DSO / 365), lowering DSO directly reduces the level of AR and therefore reduces net working capital (NWC = Current Assets – Current Liabilities), all else equal.

1) Relevant knowledge points and concepts
- DSO = average collection period; AR = Sales × DSO/365.
- Net working capital includes accounts receivable; changes in AR change NWC.
- Depreciation is a noncash allocation of fixed asset cost and unrelated to collection policy.
- EBIT is operating profit; collection timing affects cash flow and financing needs but does not directly change operating income.
- WACC is a firm-level cost of capital driven by risk and capital structure, not immediately by receivables days.

2) Step-by-step reasoning and calculation
- Initial AR = Sales × (60/365).
- New AR = Sales × (40/365).
- Change in AR = Sales × ((40 − 60)/365) = Sales × (−20/365) = −Sales × (20/365).
This is a reduction in AR equal to 20/365 of annual sales.

3) Intermediate numerical example
If Annual Sales = $1,000,000, reduction in AR = $1,000,000 × (20/365) ≈ $54,794. That amount reduces current assets and therefore reduces NWC by the same approximate amount.

4) Why the correct answer is correct
Reducing DSO directly lowers accounts receivable, the most immediate component of NWC. Therefore the most direct impact is a decrease in net working capital.

5) Why other options are incorrect
- Increase in depreciation: depreciation depends on fixed assets and accounting policies, not on collection days. No direct effect.
- Decrease in EBIT: collecting faster affects cash flow and financing needs, but operating profit (revenues minus operating expenses) remains unchanged in the short run.
- Increase in WACC: WACC is determined by risk and capital structure; faster collections may reduce financing needs (which could slightly lower required external financing), but it would not directly increase WACC.

Conclusion: The correct and most direct effect is a decrease in net working capital, which matches the provided answer.

Question at position 57 A firm reduces DSO from 60 days to 40 days while sales remain unchanged. Most direct impact:Decrease in net working capitalIncrease in depreciationDecrease in EBITIncrease in WACC单项选择题

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