FUND CORP FIN+CONNECTPLUS(LL) >CUSTOM<
11th Edition
ISBN: 9781259699481
Author: Ross
Publisher: MCG CUSTOM
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Textbook Question
Chapter 19.A, Problem 1QP
Changes in Target Cash Balances Indicate the likely impact of each of the following on a company’s target cash balance. Use the letter I to denote an increase and D to denote a decrease. Briefly explain your reasoning in each case:
a. Commissions charged by brokers decrease.
b. Interest rates paid on
c. The compensating balance requirement of a bank is raised.
d. The firm’s credit rating improves.
e. The cost of borrowing increases.
f. Direct fees for banking services are established.
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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.
Making changes to a firm’s credit policy involves trade-offs. Assuming that all other factors remain constant, which of the following are outcomes expected to result from an increase in a firm’s cash discount? Check all that apply.
An increase in the cost of the discounts given
An increase in the firm’s bad-debt expenses
An increase in the firm’s credit sales, a speeding up of customer payments, and a reduction in the firm’s receivables investment
An increase in the creditworthiness of the firm’s customers
Which of the following is a positive sign that a company can quickly turn its receivables into cash? a. A low receivables turnover ratio.b. A high receivables turnover ratio.c. A low average collection period.d. Both a high receivables turnover ratio and a low average collection period.
Chapter 19 Solutions
FUND CORP FIN+CONNECTPLUS(LL) >CUSTOM<
Ch. 19.1 - What is the transaction motive, and how does it...Ch. 19.1 - What is the cost to the firm of holding excess...Ch. 19.2 - Which would a firm be most interested in reducing,...Ch. 19.2 - Prob. 19.2BCQCh. 19.2 - Prob. 19.2CCQCh. 19.3 - Prob. 19.3ACQCh. 19.3 - Prob. 19.3BCQCh. 19.4 - Prob. 19.4ACQCh. 19.4 - What is a zero-balance account? What is the...Ch. 19.5 - What are some reasons why firms find themselves...
Ch. 19.5 - Prob. 19.5BCQCh. 19.5 - Why are money market preferred stocks an...Ch. 19.A - Prob. 1ACQCh. 19.A - Prob. 2BCQCh. 19.A - Describe how the MillerOrr model works.Ch. 19.A - Changes in Target Cash Balances Indicate the...Ch. 19.A - Using the BAT Model Given the following...Ch. 19.A - Prob. 3QPCh. 19.A - Prob. 4QPCh. 19.A - Determining Optimal Cash Balances The All Day...Ch. 19.A - Prob. 6QPCh. 19.A - Prob. 7QPCh. 19.A - Interpreting MillerOrr Based on the MillerOrr...Ch. 19.A - Prob. 9QPCh. 19.A - Using BAT Rise Against Corporation has determined...Ch. 19 - Prob. 19.1CTFCh. 19 - Prob. 19.2CTFCh. 19 - Prob. 19.3CTFCh. 19 - Prob. 1CRCTCh. 19 - Prob. 2CRCTCh. 19 - Prob. 3CRCTCh. 19 - Prob. 4CRCTCh. 19 - Prob. 5CRCTCh. 19 - Prob. 6CRCTCh. 19 - Collection and Disbursement Floats [LO1] Which...Ch. 19 - Prob. 8CRCTCh. 19 - Prob. 9CRCTCh. 19 - Prob. 10CRCTCh. 19 - Prob. 11CRCTCh. 19 - Prob. 12CRCTCh. 19 - Prob. 13CRCTCh. 19 - Prob. 1QPCh. 19 - Calculating Net Float [LO1] Each business day, on...Ch. 19 - Prob. 3QPCh. 19 - Float and Weighted Average Delay [LO1] Your...Ch. 19 - NPV and Collection Time [LO2] Your firm has an...Ch. 19 - Using Weighted Average Delay [LO1] A mail-order...Ch. 19 - Prob. 7QPCh. 19 - Lockboxes and Collections [LO2] It takes Cookie...Ch. 19 - Prob. 9QPCh. 19 - Prob. 10QPCh. 19 - Prob. 11QPCh. 19 - Calculating Transactions Required [LO2] Cow Chips,...Ch. 19 - Prob. 1MCh. 19 - Prob. 2MCh. 19 - Prob. 3M
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- An increase in accounts receivable is deducted from net income to obtain operating cash flows because a. cash collections increased due to increasing sales. b. cash collections from customers were less than the revenues reported. c. cash collections decreased due to declining sales. d. cash collections from customers were greater than the revenues reported. e. None of these.arrow_forwardAs a result of the COVID-19 crisis, company A has decided to sell its receivables to a bank in exchange for cash. What would be the effect of this financial decision on the company's current ratio, quick ratio and cash ratio?arrow_forwardWhich 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.arrow_forward
- A manager in a MNC should understand that appreciation in a firm's local currency causes a ____ in cash inflows and a ____ in cash outflows. A. increase; reduction B. reduction; reduction C. increase; increase D. reduction; increasearrow_forwardExplain 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.arrow_forwardAssuming the firm’s sales volume remained constant, would you expect it tohave a higher cash balance during a tight-money period or during an easymoney period? Why?arrow_forward
- a) What was the trend in dividends (if any) for the firm?b) What was the trend in net borrowing (proceeds from borrowing less payments of short- and long-term debt) for the firm? c) Critically evaluate the financial strength of each of the companie based on the evidence presented in the Statement of Cash Flow. d) evaluate the companies for lending purposes will you select the company for lending?arrow_forwardWhich 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.arrow_forwardThe 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 casharrow_forward
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