SCENARIO:

We took three identical firms with Period 0 starting decision values and repeated the period decisions for 4 quarters. We held all decisions constant, but changed the terms for Firm 2 (120 days for receivables) and Firm 3 (30 days for receivables) in Period 1. Firm 1 was left at 45 days as a baseline.

What is your expectation over the four periods of play relative to Firm 1? Restrict your focus to the simulation where “positive” cash flow pays off debt and “negative” cash flows adds to debt. Have fun!