Ch_18_Inclass_Exercises_Solutions

Ch_18_Inclass_Exercises_Solutions - Ch 18 Inclass Exercises...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Ch 18 Inclass Exercises Solutions 1. What are the differences between flexible and restrictive short-term financial policies? Flexible Policy Large amounts of cash and marketable securities Large amounts of inventory Liberal credit policies (large accounts receivable) Relatively low levels of short-term liabilities High liquidity Restrictive Policy Low cash and marketable security balances Low inventory levels Little or no credit sales (low accounts receivable) Relatively high levels of short-term liabilities Low liquidity 2. What factors do we need to consider when choosing a financial policy? Cash reserves Liquidity vs low return on cash Maturity hedging Try to match financing maturities with asset maturities Interest Rates Short-term rates are normally lower than long-term rates But, may not be able to refinance the short-term loans 3. What factors go into determining a cash budget and why is it valuable? How it works Identify sales and cash collections Identify various cash outflows Subtract outflows from inflows and determine investing and financing needs Primary tool in short-term financial planning Forecast of cash inflows and outflows over the next short-term planning period Helps determine when the firm should experience cash surpluses and when it will need to borrow to cover working-capital costs Allows a company to plan ahead and begin the search for financing before the money is actually needed
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 5

Ch_18_Inclass_Exercises_Solutions - Ch 18 Inclass Exercises...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online