chap027 - Chapter 27 CASH MANAGEMENT 27.1 27.2 27.3 27.4...

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Chapter 27 CASH MANAGEMENT SLIDES CHAPTER ORGANIZATION 27.1 Reasons for Holding Cash 27.2 Determining the Target Cash Balance The Baumol Model The Miller-Orr Model Other Factors Influencing the Target Cash Balance 27.3 Managing the Collection and Disbursement of Cash Accelerating Collections Delaying Disbursements 27.1 Key Concepts and Skills 27.2 Chapter Outline 27.3 Reasons for Holding Cash 27.4 Determining the Target Cash Balance 27.5 Costs of Holding Cash 27.6 The Baumol Model 27.7 The Baumol Model 27.8 The Baumol Model 27.9 The Baumol Model 27.10 The Miller-Orr Model 27.11 The Miller-Orr Model Math 27.12 Implications of the Miller-Orr Model 27.13 Implications of the Miller-Orr Model 27.14 Other Factors Influencing the Target Cash Balance 27.15 Managing the Collection and Disbursement of Cash 27.16 Float 27.17 Accelerating Collections 27.18 Overview of Lockbox Processing 27.19 Delaying Disbursements 27.20 Drafts 27.21 Ethical and Legal Questions 27.22 Investing Idle Cash 27.23 Seasonal Cash Demands 27.24 Quick Quiz
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A-62 CHAPTER 27 Disbursement Float (“Playing the Float Game”) Zero-Balance Accounts Drafts Ethical and Legal Questions Electronic Data Interchange and Check 21: The End of Float? 27.4 Investing Idle Cash Seasonal or Cyclical Activities Planned Expenditures Different Types of Money Market Securities ANNOTATED CHAPTER OUTLINE Slide 27.1 Key Concepts and Skills Slide 27.2 Chapter Outline 27.1. Reasons for Holding Cash Slide 27.3 Reasons for Holding Cash The Transaction Motive: Day-to-day cash requirements to meet expenses Compensating Balances: Cash balances held as part of a loan agreement or as compensation for bank services received Lecture Tip: A compensating balance requirement serves both as a term of a loan imposed by the lender and as compensation for services rendered by the bank. As such, it is sometimes negotiable. For example, the borrower can attempt to have the size of the required balance reduced or negotiate the nature of the terms. Rather than requiring that the company maintain $100,000 balance at all times, the lender may agree to allow the firm to maintain an average balance of $100,000 over a specified period. The latter case gives the borrower more flexibility. You should also point out that firms that normally hold significant amounts of liquid assets do not find a compensating balance requirement constraining. However, for many firms, it is cheaper to pay explicit fees to obtain a loan than it is to maintain large no- or low-interest- bearing accounts. Lecture Tip: Additional reasons for holding cash include the speculative (take advantage of unexpected opportunities) and precautionary motive (cash for emergencies). What is needed to satisfy the
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CHAPTER 27 A-63 speculative and precautionary motives is an ability to pay quickly – a need that is met with liquidity. Although cash is the most liquid asset, assets such as marketable securities are near substitutes for cash. The ability to borrow quickly is also a close substitute for
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This note was uploaded on 12/21/2011 for the course NIKA 101 taught by Professor Temur during the Spring '11 term at Acton School of Business.

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chap027 - Chapter 27 CASH MANAGEMENT 27.1 27.2 27.3 27.4...

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