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Unformatted text preview: 22-2 The two principal reasons for holding cash are for transactions and compensating
balances. The target cash balance is not equal to the sum of the holdings for each
reason because the same money can often partially satisfy both motives.
22-4 The four elements in a firm’s credit policy are (1) credit standards, (2) credit period,
(3) discount policy, and (4) collection policy. The firm is not required to accept the
credit policies employed by its competition, but the optimal credit policy cannot be
determined without considering competitors’ credit policies. A firm’s credit policy has
an important influence on its volume of sales, and thus on its profitability. 22-2 (Problems) 22-3 (Problems) DSO
Accounts receivables Discount
Days credit is outstanding 17.0
30 Nominal annual cost of trade credit 75.26% Effective annual cost of trade credit 109.84% ...
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This note was uploaded on 06/15/2011 for the course FI515 FI515 taught by Professor Fi515 during the Spring '10 term at Keller Graduate School of Management.
- Spring '10