Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Question
Chapter 27, Problem 11CQ
Summary Introduction
To describe: The merits and demerits of the use of the excess cash of reducing outstanding debt.
Cash Management:
Cash management refers to managing of cash related activities in the operation of the business as how much cash should be kept in business and how much to be invested in assets.
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What does a negative value for unlevered free cash flow imply for the claimants of a firm?
Practice :
a: The computation of return on average investment ignores one characteristic of the earnings stream, which is considered in discounting cash flows. What is this characteristic? Why is it important?
b: What are the disadvantages of evaluating an investment using payback period? Why might a company use this methodology despite these disadvantages?
Why use short-term financing?
Cash flows from operations may not be sufficient for a firm to keep up with growth-related financing needs, or the firm may not be able to always generate enough cash flow to maintain a surplus of cash. Firms prefer to borrow now to fulfill their capital requirements through means of short-term financing or long-term financing. Both methods have their advantages and disadvantages.
The following statement identifies a possible characteristic of short-term financing.
A. Consider this case:
Short-term credit agreements are more restrictive than long-term credit agreements.
Identify whether the preceding statement is true or false.
This statement is false.
This statement is true.
B. Firms use a variety of short-term financing sources to support working capital. Use the descriptions in the following table to identify the short-term financing source.
Description
Short-Term Financing Source
Continually recurring…
Chapter 27 Solutions
Corporate Finance
Ch. 27 - Cash Management Is it possible for a firm to have...Ch. 27 - Cash Management What options are available to a...Ch. 27 - Prob. 3CQCh. 27 - Cash Management versus Liquidity Management What...Ch. 27 - Prob. 5CQCh. 27 - Collection and Disbursement Floats Which would a...Ch. 27 - Prob. 7CQCh. 27 - Short-Term Investments For each of the short-term...Ch. 27 - Prob. 9CQCh. 27 - Prob. 10CQ
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