Ch_18_Inclass_Exercises_Solutions - Ch 18 Inclass Exercises...

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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
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This note was uploaded on 11/29/2011 for the course FINANCE 332 taught by Professor Linney during the Fall '11 term at Guilford Tech.

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Ch_18_Inclass_Exercises_Solutions - Ch 18 Inclass Exercises...

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