Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Textbook Question
Chapter 27, Problem 1CQ
Cash Management Is it possible for a firm to have too much cash? Why would shareholders care if a firm accumulates large amounts of cash?
Expert Solution & Answer
Summary Introduction
To identify: The possibility for a firm to keep too much cash and its impact on shareholders as a firm accumulates too much cash.
Cash Management:
Cash management refers to managing of cash related activities in the operation of the business as it deals with how much cash should be kept in business and how much to be invested in assets.
Answer to Problem 1CQ
- Yes, the company can store as much amount of cash as they would like to keep.
- The shareholders would be worried if the firm that they have invested in has a huge accumulation of funds in cash.
Explanation of Solution
- The company can store a large amount of cash to meet the requirements of the business in the near future.
- The shareholder would be worried as the company should not keep a large amount of funds in cash idle, the company should invest such cash in marketable securities or in other assets to get more return that will be beneficial for the shareholders at last.
Conclusion
The company should not keep a large amount of cash idle and should invest in other assets to get higher returns.
Want to see more full solutions like this?
Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
What are the key reasons for financial managers to maintain cash reserves? How much or how little cash should be held on hand for the operations of a business?
Cash doesn’t earn interest, so why would a company have a positive target cash balance?
Even though profits may be strong and the balance sheet solid, some say cash is still the "lifeblood" of a company? What does this refer to and whose responsibility is cash management?
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
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Explain why cash management is critical for young, fast growing companies and describe how a company could seek to cover any cash shortfalls in the future.arrow_forwardDetermine ways to improve the cash flows of an organization by addressing the following questions: What methods can be used to speed up a firm’s cash inflows? What methods can be used to delay a firm’s cash outflows? What are some of the cash management strategies used by your organization or by organizations that you know? Are there any ethical items to consider with any of these methods or strategies?arrow_forwardAssume you are the financial officer of a major firm. The president of the firm has just stated that she wishes to reduce the firm's investment in current assets since those assets provide little, if any, return to the firm. How would you respond to this statement? As long as a firm maintains a positive cash balance, why is it essential to review the firm's cash flowsarrow_forward
- How would the SCF indicate to an investor that the company is experiencing a "cash crunch?"arrow_forwardHow the action of a bank manager below can solve holding too much capital problem?• Sell or retire stock• Increase dividends to reduce retained earnings• Increase asset growth via debtarrow_forwardA firm with positive cash flow from financing Is using their excess cash to pay down their debt, buy back stock and pay dividends Is using debt and/or equity financing to grow their asset base and/or cover negative cash flow from operationsarrow_forward
- What is the Objective: Useful Information about Net Cash Inflows to the Company, and why is it important?arrow_forwardDiscuss the factors that are likely to influence the desired level of cash of a company Outline the advantages and disadvantages of using short term debt, as opposed to long term debt, in the financing of working capital Why cash flows rather than profits are most desirable in financial management? Explain the term “agency relationships” and discuss the conflicts that might exist in therelationship between’i) Shareholder and managersii) Shareholders and creditorsarrow_forwardYour CFO tells you as finance manager that he feels much safer to have a larger inventory and cash level than before. What are trade-offs involved in the decision of how much inventory or cash the firm should carry. Answer for cash level separatelyarrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage LearningAuditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTFinancial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage LearningIntermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Auditing: A Risk Based-Approach (MindTap Course L...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Financial Reporting, Financial Statement Analysis...
Finance
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
5 Steps to Setting Achievable Financial Goals | Brian Tracy; Author: Brian Tracy;https://www.youtube.com/watch?v=aXDuLxEJqBo;License: Standard Youtube License