Float is important in the cash conversion cycle of a firm because ________.
A) its presence reduces a firm's average collection period
B) its presence reduces a firm's average payment period
C) its presence lengthens both a firm's average collection period and its average payment period
D) its presence reduces the investment that a firm must make in its cash conversion cycle

Question

Quizplus · Accepted Answer

Float refers to the time between when a payment is made and when it is received. If a firm experiences float, it means that they are taking longer to receive payments for goods or services they have already provided, as well as taking longer to pay for goods or services they have already received. This lengthens both the firm's average collection period and its average payment period, which can negatively impact the cash conversion cycle. Therefore, Option C is the correct choice.

Float Is Important in the Cash Conversion Cycle of a Firm