RWJ17

MKTG (with Marketing CourseMate with eBook Printed Access Card)

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CHAPTER 17 WORKING CAPITAL MANAGEMENT Answers to Concepts Review and Critical Thinking Questions1. Yes. Once a firm has more cash than it needs for operations and planned expenditures, the excess cashhas an opportunity cost. It could be invested (by shareholders) in potentially more profitable ways.Question 9 discusses another reason. 2. If it has too much cash, it can simply pay a dividend, or, more likely in the current financialenvironment, buy back stock. It can also reduce debt. If it has insufficient cash, then it must eitherborrow, sell stock, or improve profitability. 3. Probably not. Creditors would probably want substantially more. 4. Auto manufacturers often argue that due to the cyclical nature of their business, cash reserves are agood way to deal with future economic downturns. This is debatable, but it is true that automanufacturers’ operating cash flows are very sensitive to the business cycle, and enormous losses haveoccurred during recent downturns. 5.
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RWJ17 - CHAPTER 17 WORKING CAPITAL MANAGEMENT Answers to...

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