Intermediate Financial Management
14th Edition
ISBN: 9780357516782
Author: Brigham, Eugene F., Daves, Phillip R.
Publisher: Cengage Learning
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Question
Chapter 23, Problem 3Q
Summary Introduction
To discuss: Whether the sales volume of the firm will have a higher cash balance during easy money period or tight money period.
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Assuming the firm’s sales volume remained constant, would you expect it tohave a higher cash balance during a tight-money period or during an easymoney period? Why?
Which one of the following statements is correct?
A.
If a firm decreases its inventory period, its accounts receivable period will also decrease.
B.
The longer the cash cycle, the more cash a firm typically has available to invest.
C.
A firm would prefer a negative cash cycle over a positive cash cycle.
D.
Decreasing the inventory period will also decrease the payables period.
E.
Both the operating cycle and the cash cycle must be positive values.
Which of the following statements is correct?
A firm has a greater likelihood of needing an unexpected loan when its
cash flows are relatively constant over time.
The cost of borrowing affects the target cash balance of a firm.
Management's desire to maintain a low cash balance has no effect on
the borrowing needs of a firm.
The target cash balance increases as the interest rate rises.
The target cash balance decreases as the order costs increase.
Chapter 23 Solutions
Intermediate Financial Management
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Similar questions
- . If the company reduces its DSO without seriouslyaffecting sales, what effect would this have onfree cash flow (1) in the short run and (2) in thelong run?arrow_forwardExplain how each of the following factors would probably affect a firm’starget cash balance if all other factors were held constant.a. The firm institutes a new billing procedure that better synchronizes itscash inflows and outflows.b. The firm develops a new sales forecasting technique that improves itsforecasts.arrow_forwardWhich of the following statements is true? O As a general rule, management would want to reduce the firm's average collection period. O As a general rule, a firm is not financially affected by the amount of time required to collect its accounts receivable. O As a general rule, management would want to increase the firm's average collection period. O As a general rule, management would want to reduce the firm's accounts receivable turnover ratio.arrow_forward
- Making changes to a firm’s credit policy involves trade-offs. Assuming that all other factors remain constant, which of the following are outcomes expected to result from an increase in a firm’s cash discount? Check all that apply. An increase in the cost of the discounts given An increase in the firm’s bad-debt expenses An increase in the firm’s credit sales, a speeding up of customer payments, and a reduction in the firm’s receivables investment An increase in the creditworthiness of the firm’s customersarrow_forwardWhich of the following is false? a. Baumol model helps firm to find out their desirable level of cash balance under certainty b. Any presence of a cash buffer affects the cost of holding cash and ultimately the annual cost of cash for a particular firm c. A higher average daily disbursement float than average daily collection float is more desirable for a firm d. Accounts payable increase the number of days a firm’s resources are tied up in the operating cyclearrow_forwardWhich of the following methods can NOT be used to improve the firm’s cash conversion cycle? Decrease the firm’s inventory conversion cycle. Decrease the firm’s receivables collection period. Decrease the firm’s payables deferral period. Increase the firm’s payables deferral period.arrow_forward
- Select all of the following that will have a negative effect on the firm's cash flows? (Assume other variables remain constant, no change in revenues, etc.) O Increase in Inventory Decrease in Accounts Payable Increase in Accounts Receivable Increase in Working Capital Decrease in Accounts Receivable Decrease in Inventory Increase in Accounts Payablearrow_forward1. Which firm is more likely to borrowing money in the future, a rapidly growing firm that is expanding its markets before the competition "copies" its product or service or a mature company like Procter and Gamble with established mature brands? Explain. 2. Are cash flows constant over time for most firms or do they vary across the life cycle of the typical firm? Explain.arrow_forwardQuestions: Does a low return on sales indicate a weak company? (Y/N). Explain your answer. Do greater Net sales always result in greater net income? (Y/N) Why? Examine the financial information above and comment on the item that you find interesting.arrow_forward
- All else the same, which of the following management decisions would help alleviate the problem of a buildup of excess cash? O Increase credit terms to customer; i.e. allow them more time to pay Borrow short term to increase the size of the Interest Tax Shield O Reduce credit terms to customers: i.c. make them pay sooner O Reduce the dividend payout ratio to crcate higher levels of retained earnings In evaluating the accuracy of your forecast, which of the following might be indicative of the need for a revised forecast? O The company's Dividend Payout Ratio is likely too high in the forecast period O The growth rate of Sales is trending toward 4-5% over the forecast period O The ratio of Sales/(Invested Capital) is much higher in the forecast period than in the Historical period from which you derived your forecast O The firm's Forecast D/E ratio is holding steady over the course of the forecast An effective financial plan can be either static or dynamic (True or False) O True Falsearrow_forwardWhich one of the following is true? O The change in cash position is a linear relationship to production. O As the level of inventory increases, the required sales growth increases. If the sales are lower than the sales growth break-even point, the firm will run out of working capital. O As the level of inventory increases, the required sales growth decreases.arrow_forwardWhat is the effect of extending the collection period for accounts receivable? The collection cost will be reduced. Cash flows from operations may be higher than expected for the company’s sales. The company should expand operations with its excess cash. Bad debt expense will generally be higher.arrow_forward
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