Intermediate Financial Management
14th Edition
ISBN: 9780357516782
Author: Brigham, Eugene F., Daves, Phillip R.
Publisher: Cengage Learning
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Chapter 23, Problem 4Q
Summary Introduction
To discuss: Whether the given factors affect the firm’s target cash balance when all other factors remains constant.
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Explain 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.
Explain how each of the following factors would probably affect a firm’s target cash balance if all other factors were held constant. d. The firm arranges to use an overdraft system for its checking account.
Which 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 cycle
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- Which of the following statements is most correct? a. A cash management system that maximizes collections float while minimizing disbursement float is preferable to one that has lower collections float while increasing disbursement float. b. Other things held constant, a firm will need a smaller line of credit if it can arrange to pay its bills by the 5th of each month than if its bills come due uniformly during the month. c. None of the statements are correct. d. The use of a lockbox is intended to reduce cash theft losses. In the event that if the cost of the lockbox is less than the theft losses avoided, the lockbox should be installed. e. A cash management system that minimizes collections float while increasing disbursement float outperforms one with higher collections float but lower disbursement float.arrow_forwardExplain how each of the following factors would probably affect a firm’starget cash balance if all other factors were held constant. c. The firm reduces its portfolio of U.S. Treasury bills.arrow_forwardWhich statement is correct A. Firms Cabot use lockboxes if they use cash concentration accounts. B. Firms prefer to increase delay on disbursements. C. Firms prefer to eliminate all types of float. D. Firms open regional offices so their employees can pick up lockbox payments throughout the day. E. The check clearing act for the 21st century is designed to reduce total collection time to one day.arrow_forward
- A company is expecting a temporary negative cash flow. Discuss the benefits of funding the deficit by arranging an overdraft facility with its bankarrow_forwardWhich 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.arrow_forward23-4 Explain how each of the following factors would probably affect a firm's target cash balance if all other factors were held constant. a. The firm institutes a new billing procedure that better synchronizes its cash inflows and outflows. b. The firm develops a new sales forecasting technique that improves its forecasts. Part 6 Working Capital Management c The firm reduces its portfolio of U.S. Treasury bills. d. The firm arranges to use an overdraft system for its checking account. e. The firm borrows a large amount of money from its bank and also begins to write far more checks than it did in the past. f. Interest rates on Treasury bills rise from 5 to 109. PROBLEMS REDMI NOTE 9 PRO AI QUAD CAMERAmediate Problems 1-2 23-1 Expnomt 88arrow_forward
- Which statement is correct? A. Firms prefer to increase processing delay on disbursements. B. Firms open regional offices so their employees can pick up lockbox payments throughout the day. C. The Check Clearing Act for the 21st Century is designed to reduce total collection time to one day. D. Firms cannot use lockboxes if they use cash concentration accounts.arrow_forwardRegarding a motive for maintaining liquidity, which of the following is true? Multiple Choice Firms need to hold cash as a buffer between inflowing and outflowing transactions. Firms should maintain compensating balances just in case they encounter an emergency situation. The increasing use of electronic funds transfers is increasing the transactional motive to hold cash. International firms have a transactional motive to hold cash in case favorable exchange rates become available. Firms need to hold cash for precautionary motives especially since money market accounts are not very liquid.arrow_forwardMaking 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_forward
- Match the correct type of bank risk with the appropriate associated statement. 1.The possibility that a borrower could make late, reduced, or no payments on their loans. 2.Bank management may make poor strategic decisions that result in lower profits for the bank. 3.Hackers could break into bank customer accounts. 4.Inability to access capital markets and higher borrowing costs could hurt the bank's ability for funding opportunities. 5.Changes in the yield curve could increase short-term rates and/or decrease long-term rates, resulting in a lower net interest margin for the bank. 6.General economic conditions can affect banks in the U.S. Liquidity Risk 7.Differences in the timing and drivers of rate changes reflecting the maturity and/or repricing of assets and liabilities could put the bank's earnings at risk. Credit Risk Business Operations Risk Market risk Interstate Rate Risk Liquidity Riskarrow_forwardIn recent times bank is witnessing volatility in interest rates as well as foreign exchange rates .Thus putting pressure on the banks for maintaining a good balance among spreads, profitability and long-term sustainability. As a risk mitigating manager write a short note on asset – Asset liability management (ALM) and its importance Discuss the two main type of ALM Technique used in banks.arrow_forwardWhich 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.arrow_forward
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