Concept explainers
Case summary:
Chief financing officer of Company RR, a speciality coffee manufacturer, is re-thinking about its working capital policy and wants to re-new its line of credit and it wouldn’t ready to build payroll, probably forcing the company out of business.
The scare has forced the company to examine carefully about each component of working capital to make sure it is required, and decide whether the goal is to determine the line of credit are often eliminated entirely.
Previously, it has done little to look at assets and mainly because of poor communication among business functions and the decisions about working capital cannot be made at vacuum.
To discuss: Reason of having a positive target cash balance by company, if cash doesn’t earn interest.
Want to see the full answer?
Check out a sample textbook solutionChapter 21 Solutions
Intermediate Financial Management (MindTap Course List)
- 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?arrow_forwardWhy is not a bad thing to have negative cash from financing activities?arrow_forwardCash management principles do not include: a.paying suppliers promptly. b.speeding up collection from customers. c.delaying payment of suppliers. d.earning the greatest return possible on excess cash.arrow_forward
- When a company has a generous credit policy, cash is tied up in receivables and the company must finance its expansion or the payment of its bills through increased borrowing. What label is given to this cost of selling on credit? Carrying cost Sales returns and allowances cost Bookkeeping cost Bad debit costarrow_forwardWhat is the effect of extending the collection period for accounts receivable? The collection cost will be reduced. Cash flows from operations may be higher than expected for the company’s sales. The company should expand operations with its excess cash. Bad debt expense will generally be higher.arrow_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_forward
- Is a negative free cash flow (FCF) always a bad sign? A negative free cash flow means that the company does not have sufficient internal funds to finance investments in fixed assets and working capital. Is there a scenario where a negative free cash flow is not a bad sign for the company?arrow_forwardWhich one of the items below is not a reason why cash does not equal profit? Cash Sales Prepayments Credit Purchases Credit Salesarrow_forwardFena Company has experienced a stochastic demand for its product, which results in fluctuating cash balances randomly. Determine the optimal cash balance, and average cash balance. check the attached photo for additional infoarrow_forward
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage LearningPrinciples of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
- Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning