International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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The financial manager of a firm wants to determine the amount of cash outlays to be spent for the next period. He asked the help of the accountant and the latter provided a cash budget for the next year. According to the computations, the company would be incurring cash expenses of P6,612,500 per month. The financial manager has estimated a cost of P40 per transaction in case non-cash asset is converted to cash. The firm’s opportunity cost ratio is 12%.
The optimum cash balance is?
The average cash balance is?
the number of conversion made during the year is?
The total cash cost is?
You have to test cash and PP&E of your client. Both accounts have the same balance at the end of the year: $25 million. In a typical company, which account will you spend more time testing AND WHY?
American Products is concerned about managing cash efficiently. On average, inventories have an age of 90 days, and accounts receivable are collected in 60 days. Accounts payable are paid approximately 30 days after they arise. The firm’s operating-cycle investments are $30 million per year.Cost of goods sold are $20 million, and purchases are $15 million.
a. Calculate the firm’s operating cycle.
b. Calculate the firm’s cash conversion cycle.
c. Calculate the amount of resources needed to support the firm’s cash conversion cycle.
d. Discuss how management might be able to reduce the cash conversion cycle.
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