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    Question

    Offering a cash discount to customers for early payment

    of their invoices will likely:
    A Increase the average collection period. Correct Answer Incorrect Answer
    B Have no impact on the cash conversion cycle. Correct Answer Incorrect Answer
    C Shorten the cash conversion cycle. Correct Answer Incorrect Answer
    D Increase bad debts. Correct Answer Incorrect Answer

    Solution

    A cash discount incentivizes customers to pay their bills sooner. This reduces the Days Sales Outstanding (DSO), which is a component of the Cash Conversion Cycle (CCC). A lower DSO leads to a shorter CCC, meaning cash is collected faster.

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