Need to be given on a thursday evening so have entire

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Need to be given on a Thursday evening so have entire weekend to work on Thurs 22 Essay exam … no more than 3 questions (may be only 1) Individual exam Only cover ST financing as we have discussed Financing for the firm for working capital o Receivables, payables, inventory, ST financing o Inventory – inventory turnover rate, can they handle it … more than numerical thing – need to know quality, market Changing schedules All ways have implications Caution = be careful about nature of decisions you want to make Could make big savings but go nowhere – could have risks (nature of market) o Remember risk factors! o Ease of entering market Toy World discussion – can two companies have the same profile and yet be significantly different? o (exact same capital ratio/product ratio/etc. but one is vastly more liquid than the other; same amount of cash, yet still vastly different?) o Balance sheet Cash – what does it mean, what is it? Might be cash equivalents … not all the same, some are more liquid than others o [Looking at cash ratio between two companies would not allow you to detect that] o Differ in amount of liquidity they represent – having the same amount of cash equivalents doesn’t mean that same amount of liquidity o Commercial papers – lasts about 10 days
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o Repurchase agreement – usually lasts 24 hours Used virtually every day by banks o Money market fund o Sum CD Why important part of firm’s strategy? o Sometimes firms need to be able to pay people Salaries, shipment, inventories Accounts receivables Firms can have same accounts receivables but very different liquidities o Will not rank them equivalently o Depends on how accounts receivables are distributed Some have more risk than others Banks, credit card companies – migrating o Evaluate AR every period and move from one to another Depends on nature of AR Areas – geographical areas, income classes o Factoring arrangement? Factoring: the ability of the firm to sell its receivables (arrangement that allows it to) If has factoring arrangement – can turn receivables into cash automatically or quickly Most monetization of receivables is automatic o Special purpose entity (SPV) and variable interest entity SPV - help companies securitize assets, create joint ventures, isolate corporate assets or perform other financial transactions VIE - entity that an investor has a controlling interest in, but this controlling interest is not based on a majority of voting rights Appreciate the transaction Transaction o X has $50B and $60B in accounts receivables Y bought receivables Receivables has Interest Receivables are redeemed o Two payments (like bonds) Security engineer looks for streams of income o Two natural for receivable o Cut it in parts and sell – securitized it o Income you’re likely to get is multiple of what you bought originally Use money you got to buy more receivables
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