CORPORATE FINANCE(LL)
11th Edition
ISBN: 9781260430011
Author: Ross
Publisher: MCG
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Question
Chapter 27, Problem 10CQ
Summary Introduction
To describe: The merits and demerits of the use of excess cash as with excess cash the firm has to make a quick payment to the suppliers.
Cash Management:
Cash management refers to managing of cash related activities in the operation of the business as how much cash should be kept in business and how much to be invested in assets.
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Students have asked these similar questions
What are some tools that companies have to manage their (net operating) working capital? Provide examples of inventory and receivables management techniques. What is the Cash Conversion Cycle and why is this a useful metric? Are there risks if this is too low?
Why is it important for a firm to minimize the length of its cash conversion cycle (CCC)? How can the firm minimize it? What are the strategies that the firm should consider while trying to minimize the CCC?
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
Chapter 27 Solutions
CORPORATE FINANCE(LL)
Ch. 27 - Cash Management Is it possible for a firm to have...Ch. 27 - Cash Management What options are available to a...Ch. 27 - Prob. 3CQCh. 27 - Cash Management versus Liquidity Management What...Ch. 27 - Prob. 5CQCh. 27 - Collection and Disbursement Floats Which would a...Ch. 27 - Prob. 7CQCh. 27 - Short-Term Investments For each of the short-term...Ch. 27 - Prob. 9CQCh. 27 - Prob. 10CQ
Ch. 27 - Prob. 11CQCh. 27 - Prob. 12CQCh. 27 - Calculating Float In a typical month, the Warren...Ch. 27 - Calculating Net Float Each business day, on...Ch. 27 - Costs of Float Purple Feet Wine, Inc., receives an...Ch. 27 - Float and Weighted Average Delay Your neighbor...Ch. 27 - Prob. 5QPCh. 27 - Using Weighted Average Delay A mail-order firm...Ch. 27 - Prob. 7QPCh. 27 - Lockboxes and Collections It takes Cookie Cutter...Ch. 27 - Value of Delay No More Pencils, Inc., disburses...Ch. 27 - NPV and Reducing Float No More Books Corporation...Ch. 27 - Prob. 11QPCh. 27 - Prob. 12QPCh. 27 - Prob. 1MCCh. 27 - Prob. 2MCCh. 27 - What cost of ACH transfers would make the company...
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Similar questions
- 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 ratioarrow_forwardTRUE OR FALSE 1. The best and most comprehensive picture of a firm's liquidity position is obtained by examining its cash budget. 2. A firm's goal should be to lengthen the cash conversion cycle since shorter cash conversion cycles leads firms to increase their dependence on costly external financing. 3. The larger the investment a firm makes in its current assets, the higher its carrying costs will be.arrow_forwardHow does a short-term cash flow crisis impact a firm's competitive strategy?arrow_forward
- A. What is the incremental cash flows from switching credit policies? B. What is the cost of switching? C. What is your recommendation? D. What is the break-even sales increase? Interpret.arrow_forwardWhich of the following methods can NOT be used to improve the firm’s cash conversion cycle? Decrease the firm’s inventory conversion cycle. Decrease the firm’s receivables collection period. Decrease the firm’s payables deferral period. Increase the firm’s payables deferral period.arrow_forwardPractice : a: The computation of return on average investment ignores one characteristic of the earnings stream, which is considered in discounting cash flows. What is this characteristic? Why is it important? b: What are the disadvantages of evaluating an investment using payback period? Why might a company use this methodology despite these disadvantages?arrow_forward
- 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 cyclearrow_forward- How would a reduction in the cash conversion cycle increase profitability? What aresome actions a firm can take to shorten its cash conversion cycle?- Is it possible for a firm’s cash conversion cycle to be negative (or net operating workingcapital to be negative)? Explain why or why not. If there exists a firm with negativeCCC, give an example, what are characteristics of such company.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
- Cash Conversion Cycle. Will each of the followingevents increase or decrease cash conversion cycles?(LO2)A-Higher financing rates induce the firm to reduceits level of inventory. b.The firm obtains a new line of credit that enablesit to avoid stretching payables to its suppliers.c-The firm factors its trade receivables.d-A recession occurs andthe firm's customersincreasingly stretch their payables.e.The new production process shortens the timeneeded to manufacture products.arrow_forwardA 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_forward
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