A higher average daily disbursement float than average daily collection float is more desirable for a firm O The Baumol model helps firm to find out their desirable level of cash balance under certainty O Accounts payable increase the number of days a firm's resources are tied up in the operating cycle Any presence of a cash buffer affects the cost of holding cash and ultimately the annual cost of cash for a particular firm

A higher average daily disbursement float than average daily collection float is more desirable for a firm O The Baumol model helps firm to find out their desirable level of cash balance under certainty O Accounts payable increase the number of days a firm's resources are tied up in the operating cycle Any presence of a cash buffer affects the cost of holding cash and ultimately the annual cost of cash for a particular firm

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter23: Other Topics In Working Capital Management

Section: Chapter Questions

Problem 4Q

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A fellow student studying managerial accounting says. The net present value (NPV) weighs early receipts of cash much more heavily than more distant receipts of cash. Do you agree or disagree? Why?
Which of the following is false? a. Baumol model helps firm to find out their desirable level of cash balance under certainty b. Any presence of a cash buffer affects the cost of holding cash and ultimately the annual cost of cash for a particular firm c. A higher average daily disbursement float than average daily collection float is more desirable for a firm d. Accounts payable increase the number of days a firm’s resources are tied up in the operating cycle
Which of the following statements is most correct? a. A cash management system that maximizes collections float while minimizing disbursement float is preferable to one that has lower collections float while increasing disbursement float. b. Other things held constant, a firm will need a smaller line of credit if it can arrange to pay its bills by the 5th of each month than if its bills come due uniformly during the month. c. None of the statements are correct. d. The use of a lockbox is intended to reduce cash theft losses. In the event that if the cost of the lockbox is less than the theft losses avoided, the lockbox should be installed. e. A cash management system that minimizes collections float while increasing disbursement float outperforms one with higher collections float but lower disbursement float.
The company’s usage of the Baumol model in cash management involves trade-off. A decrease in the optimal transaction size would more likely result from Decrease of debt to asset ratio Increase of return on marketable securities None of the choices is correct Increase in the annual demand for cash
Explain how each of the following factors would probably affect a firm’starget cash balance if all other factors were held constant.a. The firm institutes a new billing procedure that better synchronizes itscash inflows and outflows.b. The firm develops a new sales forecasting technique that improves itsforecasts.
Which one of the following statements is correct? A. If a firm decreases its inventory period, its accounts receivable period will also decrease. B. The longer the cash cycle, the more cash a firm typically has available to invest. C. A firm would prefer a negative cash cycle over a positive cash cycle. D. Decreasing the inventory period will also decrease the payables period. E. Both the operating cycle and the cash cycle must be positive values.
The company’s usage of the Baumol model in cash management involves trade-off. A decrease in the optimal transaction size would more likely result from a. Increase of return on marketable securities b. None of the choices is correct c. Increase in the annual demand for cash d. Decrease of debt to asset ratio
Explain how each of the following factors would probably affect a firm’s target cash balance if all other factors were held constant. d. The firm arranges to use an overdraft system for its checking account.
Several factors affect a firm’s need for external funds. Evaluate the effect of each following factor and place a check next to each factor that is likely to increase a firm’s need for external capital—that is, its AFN (additional funds needed). Check all that apply. The firm increases its dividend payout ratio. The firm switches its supplier for the majority of its raw materials. The new supplier offers less favorable credit terms and thus reduces the trade credit available to the firm, resulting in a reduction in accounts payable. The firm improves its production system and increases its profit margin. Accounts payable and accrued liabilities represent obligations that the firm must pay off. Assuming everything else holds constant, if they increase, the firm’s AFN will_________ .
Which of the following statements is NOT CORRECT? a. The cash budget is useful for estimating potential funding needs, especially for short-term working capital loans. b. Working capital management is critical because it affects financing decisions and the firm's profitability. c. Credit policy affects working capital because it impacts both sales and the time it takes for receivables to be obtained. d. If a company needs to increase its cash flow from operations in the next month or two, it can change its credit policy from 2/10 net 30 to net 60. e. f a company is unsure about the volume of sales, profits, and cash flows for the coming year, it will retain a relatively large amount of cash and marketable securities.
What are the lessons for the lessons for investors and corporate managers with respect to market efficiency (check all that apply)? Group of answer choices If stocks are fairly priced, then investors can expect future cash flows that fairly compensate them for the risk of that investment You get paid (in the form of expected returns) for taking on risk If markets are efficient then relevant information quickly gets incorporated into prices Treasury departments of industrial firms should try to outguess the markets in managing their corporate cash
Your CFO tells you as finance manager that he feels much safer to have a larger inventory and cash level than before. What are trade-offs involved in the decision of how much inventory or cash the firm should carry. Answer for cash level separately