Intermediate Financial Management (MindTap Course List)
12th Edition
ISBN: 9781285850030
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Chapter 23, Problem 4Q
Summary Introduction
To discuss: Whether the given factors affect the firm’s target cash balance when all other factors remains constant.
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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.
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 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
Chapter 23 Solutions
Intermediate Financial Management (MindTap Course List)
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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.arrow_forwardExplain how each of the following factors would probably affect a firm’starget cash balance if all other factors were held constant. c. The firm reduces its portfolio of U.S. Treasury bills.arrow_forwardWhat 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 casharrow_forward
- Assuming 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_forwardYour 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 separatelyarrow_forwardExplain how the EOQ inventory model can be modified and used to help determine the optimal sizeof a firm’s cash balances. Do you think the EOQapproach to cash management is more or less relevant today than it was in precomputer, preelectronic communications days?arrow_forward
- 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.arrow_forwardYour 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 both inventory level and cash level separatelyarrow_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
- “… When the assets of the Central Bank are analyzed, one should see that there is no significant increase. This is a net indicator of the Central Bank’s tight monetary policy. In an economy where Central Bank’s balance-sheet expands almost 2%, saying that money supply increases almost 16% is just bending the truth …”is this idea true? Why or why not? Explain your answer in detail.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_forwardAssume that you are the senior manager of a leading commercial bank in Oman. You are aware that there are no capital controls in Oman and that Omani Rial is pegged against the dollar. Your past experience tells you that while is some weeks your bank has surplus liquidity, in other weeks there are deficits. You are trying to decide whether to use an Asset Conversion Strategy or a Borrowed Liquidity Strategy in managing your bank's liquidity position. Which of these two strategies, would you prefer and why ?arrow_forward
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