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Chapter 16 - fName Nguyen Thi Lan Thanh Student ID 1236311...

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fName: Nguyen Thi Lan Thanh Student ID: 1236311 CHAPTER 16 Questions: 16.2/ Define cash conversion cycle (CCC) and explain why, holding other things constant, a firm’s profitability would increase if it lowered its CCC. Cash conversion cycle (CCC): The length of time funds are tired up in working capital or the length of time between paying for working capital and collecting cash from the sale of the working capital. Explain: Holding other things constant, a firm’s profitability would increase if it lowered its CCC because of increasing operating costs and its interest charge would be reduced. 16.3/ What are the two definitions of cash, and why do corporate treasurers often use the second definition? The two definitions of cash are: Operating short-term securities, which are held primarily to provide liquidity and are bought and sold as needed to provide funds for operations. Other short-term securities, which are holdings in excess of the amount needed to support normal operations. The reason corporate treasurers think of cash as they do it that from their perspective, there is little difference between demand deposits and liquid marketable securities. However, holding more currency would raise capital costs and with some businesses like fast-food operators, casinos, hotels, movie theaters… keeping more currency also increases risk of robbers. 16.4/ What is a cash budget, and how can this statement be used to help reduce the amount of cash that a firm needs to carry? What are the advantages and disadvantages of daily over monthly cash budgets, and how might a cash budget be used when a firm is negotiating a loan from its banks? A cash budget is a table that shows cash receipt, disbursements, and balances over some period. Cash budget is used to assess whether the entity has sufficient cash to fulfill regular operations.
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