-In the management of cash and marketable securities, why should the primary concern be for safety and liquidity rather than maximization of profit?
-Why would a financial manager want to slow down disbursements?
-Why are Treasury bills a favorite place for financial managers to invest excess cash?
-What does the EOQ formula tell us? What assumption is made about the usage rate for inventory?
-Beth’s Society Clothiers, Inc., has collection centers across the country to speed up collections. The company also makes payments from remote disbursement centers so the firm’s checks will take longer to clear the bank. Collection time has been reduced by two and one-half days and disbursement time increased by one and one-half days because of these policies. Excess funds are being invested in short-term instruments yielding 6 percent per annum.
a. If the firm has $4 million per day in collections and $3 million per day in disbursements, how many dollars has the cash management system freed up?
b. How much can the firm earn in dollars per year on short-term investments made possible by the freed-up cash?
-Orbital Communications has operating plants in over 100 countries. It also keeps funds for transaction purposes in many foreign countries. Assume that in 2010 it held 100,000 kronas in Norway worth $35,000. The funds drew 12 percent interest, and the krona increased 6 percent against the dollar.
What was the value of the holdings based on U.S. dollars, at year-end? ( Hint: Multiply $35,000 times 1.12 and then multiply the resulting value by 106 percent.)
-Postal Express has outlets throughout the world. It also keeps funds for transactions purposes in many foreign countries. Assume that in 2010 it held 200,000 reals in Brazil worth 130,000 dollars. It drew 10 percent interest, but the Brazilian real declined 20 percent against the dollar.
a . What is the value of the holdings, based on U.S. dollars, at year-end? ( Hint: Multiply $130,000 times 1.10 and then multiply the resulting value by 80 percent.)
b. What is the value of its holdings, based on U.S. dollars, at year-end if instead it drew 8 percent interest and the real went up by 12 percent against the dollar?
-Eco-Friendly Products has annual credit sales of $900,000 and an average collection period of 30 days. Assume a 360-day year. What is the company’s average accounts receivable balance? Accounts receivable are equal to the average daily credit sales times the average collection period.