Topic_23_E1

Topic_23_E1 - area went up the line to get approval. Credit...

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Topic 23, Exercise 1 Credit Management In December of 1999, Lucent's stock was selling above $80 per share. In June of 2001, Lucent's stock price had fallen to $5.31. While many problems existed at Lucent, one of the central problems was the lack of control on credit granted to purchasers of Lucent products. A recent article in Treasury and Risk Management entitled, The Long Road Back At Lucent highlights the problems faced by Lucent and the role of finance in rebuilding. After reading the article, answer the following questions: 1. One of the problems at Lucent was that the finance department was not integrated into the operations of Lucent. Describe the problems related to growth and vendor financing. As the article points out, Lucent had a serious problem of financing growth with vendor financing. The finance department had little input into the review of credit sales by the marketing department. When finance did turn a vendor financing deal down, the sales
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Unformatted text preview: area went up the line to get approval. Credit sales were being used to finance growth but there was not a good system in place to approve and monitor the vendor financing. When credit customers did not repay, it led to liquidity problems and extended use of debt. 2. What steps did the new treasurer take to fix the vendor finance problem? When the new treasurer, Martina Hund-Mejan, took over, she had to first fix the short-term financing problems by negotiating new financing with banks. She then had Bank of America conduct a review of the credit approval and monitoring operations at Lucent. The review resulted in several new policies and controls being put in place. With the changes and added controls, Lucent has reduced its exposure to vendor financing by 32%. The company has become more disciplined and the finance department has become an integral component of the company....
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