Question

which of the following would most likely decrease the npv of the short - term cash flows from a sale made on credit terms?

1. longer dso
2. shorter dso
3. lower discount rate
4. higher discount rate

i and iii
i and iv
ii and iii
ii and iv

Explanation:

• DSO (Days Sales Outstanding): A longer DSO means cash is received later. In NPV (Net Present Value) calculation, cash received later has a lower present value, so longer DSO decreases NPV. A shorter DSO means cash is received sooner, increasing NPV.
• Discount Rate: A higher discount rate reduces the present value of future cash flows (since $PV=\frac{CF}{(1 + r)^n}$, higher $r$ lowers $PV$). A lower discount rate increases the present value of future cash flows.

So, longer DSO (I) and higher discount rate (IV) decrease NPV.

Answer:

I and IV