medium · Principles of Finance

What happens to FCFF if a company decides to aggressively shorten its 'Days Payables Outstanding' (DPO) by paying its suppliers faster?

1. FCFF will increase because it will likely lead to higher gross margins through supplier discounts.
2. FCFF remains unchanged as this is purely a balance sheet timing issue with no impact on FCF.
3. FCFF will decrease because the reduction in Accounts Payable is a use of cash.
4. FCFF will increase because the firm is more efficient in its operations.

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