The global treasury news discovered that the number one risk is the liquidity risk in its annual survey. The global financial crisis explained the impact of liquidity risk where there was simply not enough liquid cash for the companies. The concept of holding large cash reserves are beneficial but they can also bring back low returns on those assets. The firms must decide how much cash they must hold to ensure the safety of a firm. To explain: The tradeoff companies face when they decide how much cash to hold in reserve. Introduction: Liquidity risk: It is the risk where the firm is facing a possibility of low cash reserves or any access to cash with the help of credit markets when it is required.

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Answer 1

Question

Chapter 15, Problem 1OR

Summary Introduction

Case summary:

The global treasury news discovered that the number one risk is the liquidity risk in its annual survey. The global financial crisis explained the impact of liquidity risk where there was simply not enough liquid cash for the companies.

The concept of holding large cash reserves are beneficial but they can also bring back low returns on those assets. The firms must decide how much cash they must hold to ensure the safety of a firm.

To explain: The tradeoff companies face when they decide how much cash to hold in reserve.

Introduction:

Liquidity risk:

It is the risk where the firm is facing a possibility of low cash reserves or any access to cash with the help of credit markets when it is required.

Expert Solution & Answer

Explanation of Solution

The tradeoff companies face when they decide how much cash to hold in reserve:

A company with a huge cash reserve is beneficial for the company. It helps to overcome the temporary fluctuations in the market. But, the possession of large cash reserves can also hinder the productivity of the company. The gap between the returns on cash and the price for holding the cash indicated by the cost of capital.

The company is effectively earning less than what the investors are expecting from the cash balance. The company with a large cash balance also cannot find an additional capital investment opportunity and they have no idea about new investment opportunities. This will be sent as a negative signal to the investors leading to reflections in the share price.

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Students have asked these similar questions

Consider the following simplified financial statements for the Yoo Corporation (assuming no income taxes): Income Statement Balance Sheet Sales Costs $ 40,000 Assets 34,160 $26,000 Debt Equity $ 7,000 19,000 Net income $ 5,840 Total $26,000 Total $26,000 The company has predicted a sales increase of 20 percent. Assume Yoo pays out half of net income in the form of a cash dividend. Costs and assets vary with sales, but debt and equity do not. Prepare the pro forma statements. (Input all amounts as positive values. Do not round intermediate calculations and round your answers to the nearest whole dollar amount.) Pro forma income statement Sales Costs $ 48000 40992 Assets $ 31200 Pro forma balance sheet Debt 7000 Equity 19000 Net income $ 7008 Total $ 31200 Total 30304 What is the external financing needed? (Do not round intermediate calculations. Negative amount should be indicated by a minus sign.) External financing needed $ 896

An insurance company has liabilities of £7 million due in 10 years' time and £9 million due in 17 years' time. The assets of the company consist of two zero-coupon bonds, one paying £X million in 7 years' time and the other paying £Y million in 20 years' time. The current interest rate is 6% per annum effective. Find the nominal value of X (i.e. the amount, IN MILLIONS, that bond X pays in 7 year's time) such that the first two conditions for Redington's theory of immunisation are satisfied. Express your answer to THREE DECIMAL PLACES.

An individual is investing in a market where spot rates and forward rates apply. In this market, if at time t=0 he agrees to invest £5.3 for two years, he will receive £7.4 at time t=2 years. Alternatively, if at time t=0 he agrees to invest £5.3 at time t=1 for either one year or two years, he will receive £7.5 or £7.3 at times t=2 and t=3, respectively. Calculate the price per £5,000 nominal that the individual should pay for a fixed-interest bond bearing annual interest of 6.6% and is redeemable after 3 years at 110%. State your answer at 2 decimal places.

Answer 2

Question

Chapter 15, Problem 1OR

Summary Introduction

Case summary:

The global treasury news discovered that the number one risk is the liquidity risk in its annual survey. The global financial crisis explained the impact of liquidity risk where there was simply not enough liquid cash for the companies.

The concept of holding large cash reserves are beneficial but they can also bring back low returns on those assets. The firms must decide how much cash they must hold to ensure the safety of a firm.

To explain: The tradeoff companies face when they decide how much cash to hold in reserve.

Introduction:

Liquidity risk:

It is the risk where the firm is facing a possibility of low cash reserves or any access to cash with the help of credit markets when it is required.

Expert Solution & Answer

Explanation of Solution

The tradeoff companies face when they decide how much cash to hold in reserve:

A company with a huge cash reserve is beneficial for the company. It helps to overcome the temporary fluctuations in the market. But, the possession of large cash reserves can also hinder the productivity of the company. The gap between the returns on cash and the price for holding the cash indicated by the cost of capital.

The company is effectively earning less than what the investors are expecting from the cash balance. The company with a large cash balance also cannot find an additional capital investment opportunity and they have no idea about new investment opportunities. This will be sent as a negative signal to the investors leading to reflections in the share price.

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!

Answer 3

Question

Chapter 15, Problem 1OR

Summary Introduction

Case summary:

The global treasury news discovered that the number one risk is the liquidity risk in its annual survey. The global financial crisis explained the impact of liquidity risk where there was simply not enough liquid cash for the companies.

The concept of holding large cash reserves are beneficial but they can also bring back low returns on those assets. The firms must decide how much cash they must hold to ensure the safety of a firm.

To explain: The tradeoff companies face when they decide how much cash to hold in reserve.

Introduction:

Liquidity risk:

It is the risk where the firm is facing a possibility of low cash reserves or any access to cash with the help of credit markets when it is required.

Expert Solution & Answer

Explanation of Solution

The tradeoff companies face when they decide how much cash to hold in reserve:

A company with a huge cash reserve is beneficial for the company. It helps to overcome the temporary fluctuations in the market. But, the possession of large cash reserves can also hinder the productivity of the company. The gap between the returns on cash and the price for holding the cash indicated by the cost of capital.

The company is effectively earning less than what the investors are expecting from the cash balance. The company with a large cash balance also cannot find an additional capital investment opportunity and they have no idea about new investment opportunities. This will be sent as a negative signal to the investors leading to reflections in the share price.

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!

Answer 4

Question

Chapter 15, Problem 1OR

Summary Introduction

Case summary:

The global treasury news discovered that the number one risk is the liquidity risk in its annual survey. The global financial crisis explained the impact of liquidity risk where there was simply not enough liquid cash for the companies.

The concept of holding large cash reserves are beneficial but they can also bring back low returns on those assets. The firms must decide how much cash they must hold to ensure the safety of a firm.

To explain: The tradeoff companies face when they decide how much cash to hold in reserve.

Introduction:

Liquidity risk:

It is the risk where the firm is facing a possibility of low cash reserves or any access to cash with the help of credit markets when it is required.

Expert Solution & Answer

Explanation of Solution

The tradeoff companies face when they decide how much cash to hold in reserve:

A company with a huge cash reserve is beneficial for the company. It helps to overcome the temporary fluctuations in the market. But, the possession of large cash reserves can also hinder the productivity of the company. The gap between the returns on cash and the price for holding the cash indicated by the cost of capital.

The company is effectively earning less than what the investors are expecting from the cash balance. The company with a large cash balance also cannot find an additional capital investment opportunity and they have no idea about new investment opportunities. This will be sent as a negative signal to the investors leading to reflections in the share price.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 15, Problem 1OR

Summary Introduction

Case summary:

The global treasury news discovered that the number one risk is the liquidity risk in its annual survey. The global financial crisis explained the impact of liquidity risk where there was simply not enough liquid cash for the companies.

The concept of holding large cash reserves are beneficial but they can also bring back low returns on those assets. The firms must decide how much cash they must hold to ensure the safety of a firm.

To explain: The tradeoff companies face when they decide how much cash to hold in reserve.

Introduction:

Liquidity risk:

It is the risk where the firm is facing a possibility of low cash reserves or any access to cash with the help of credit markets when it is required.

Expert Solution & Answer

Explanation of Solution

The tradeoff companies face when they decide how much cash to hold in reserve:

A company with a huge cash reserve is beneficial for the company. It helps to overcome the temporary fluctuations in the market. But, the possession of large cash reserves can also hinder the productivity of the company. The gap between the returns on cash and the price for holding the cash indicated by the cost of capital.

The company is effectively earning less than what the investors are expecting from the cash balance. The company with a large cash balance also cannot find an additional capital investment opportunity and they have no idea about new investment opportunities. This will be sent as a negative signal to the investors leading to reflections in the share price.

Answer 6

Chapter 15, Problem 1OR

Summary Introduction

Case summary:

The global treasury news discovered that the number one risk is the liquidity risk in its annual survey. The global financial crisis explained the impact of liquidity risk where there was simply not enough liquid cash for the companies.

The concept of holding large cash reserves are beneficial but they can also bring back low returns on those assets. The firms must decide how much cash they must hold to ensure the safety of a firm.

To explain: The tradeoff companies face when they decide how much cash to hold in reserve.

Introduction:

Liquidity risk:

It is the risk where the firm is facing a possibility of low cash reserves or any access to cash with the help of credit markets when it is required.

Expert Solution & Answer

Explanation of Solution

The tradeoff companies face when they decide how much cash to hold in reserve:

A company with a huge cash reserve is beneficial for the company. It helps to overcome the temporary fluctuations in the market. But, the possession of large cash reserves can also hinder the productivity of the company. The gap between the returns on cash and the price for holding the cash indicated by the cost of capital.

The company is effectively earning less than what the investors are expecting from the cash balance. The company with a large cash balance also cannot find an additional capital investment opportunity and they have no idea about new investment opportunities. This will be sent as a negative signal to the investors leading to reflections in the share price.

Answer 7

Chapter 15, Problem 1OR

Summary Introduction

Case summary:

The global treasury news discovered that the number one risk is the liquidity risk in its annual survey. The global financial crisis explained the impact of liquidity risk where there was simply not enough liquid cash for the companies.

The concept of holding large cash reserves are beneficial but they can also bring back low returns on those assets. The firms must decide how much cash they must hold to ensure the safety of a firm.

To explain: The tradeoff companies face when they decide how much cash to hold in reserve.

Introduction:

Liquidity risk:

It is the risk where the firm is facing a possibility of low cash reserves or any access to cash with the help of credit markets when it is required.

Answer 8

Expert Solution & Answer

Explanation of Solution

The tradeoff companies face when they decide how much cash to hold in reserve:

A company with a huge cash reserve is beneficial for the company. It helps to overcome the temporary fluctuations in the market. But, the possession of large cash reserves can also hinder the productivity of the company. The gap between the returns on cash and the price for holding the cash indicated by the cost of capital.

The company is effectively earning less than what the investors are expecting from the cash balance. The company with a large cash balance also cannot find an additional capital investment opportunity and they have no idea about new investment opportunities. This will be sent as a negative signal to the investors leading to reflections in the share price.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Ch. 15.1 - Why is working capital management one of the most...Ch. 15.1 - Prob. 15.2RQ Ch. 15.1 - Prob. 15.3RQ Ch. 15.2 - Prob. 15.4RQ Ch. 15.2 - Prob. 15.5RQ Ch. 15.2 - What are the benefits, costs, and risks of an...Ch. 15.2 - Prob. 15.7RQ Ch. 15.3 - Prob. 1FOP Ch. 15.3 - Prob. 15.8RQ Ch. 15.3 - Briefly describe the following techniques for...

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