Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
11th Edition
ISBN: 9780077861759
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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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.
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Chapter 27 Solutions
Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
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
Ch. 27 - Prob. 11CQCh. 27 - Prob. 12CQCh. 27 - Calculating Float In a typical month, the Warren...Ch. 27 - Calculating Net Float Each business day, on...Ch. 27 - Costs of Float Purple Feet Wine, Inc., receives an...Ch. 27 - Float and Weighted Average Delay Your neighbor...Ch. 27 - Prob. 5QPCh. 27 - Using Weighted Average Delay A mail-order firm...Ch. 27 - Prob. 7QPCh. 27 - Lockboxes and Collections It takes Cookie Cutter...Ch. 27 - Value of Delay No More Pencils, Inc., disburses...Ch. 27 - NPV and Reducing Float No More Books Corporation...Ch. 27 - Prob. 11QPCh. 27 - Prob. 12QPCh. 27 - Prob. 1MCCh. 27 - Prob. 2MCCh. 27 - What cost of ACH transfers would make the company...
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- Is a negative free cash flow (FCF) always a bad sign? A negative free cash flow means that the company does not have sufficient internal funds to finance investments in fixed assets and working capital. Is there a scenario where a negative free cash flow is not a bad sign for the company?arrow_forwardWhat methods can be used to delay a firm’s cash outflows?arrow_forwardWhat factors determine the need for cash in a firm's operation?arrow_forward
- Need help with botharrow_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_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_forward
- Which of the following could cause a company to have a high ratio of cash to noncash assets? a. Highly volatile operations. b. Low dividend payments. c. Significant foreign operations. d. All of these factors could contribute to a high ratio of cash to noncash assets.arrow_forwardWhat does a positive operating cash flow mean for a company? What do a positive cash flow from assets, a positive cash flow to creditors and a positive cash flow to stockholders mean? What do these positive cash flows mean for an expansion plan financed by debt and equity?arrow_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
- a. Discuss the factors that are likely to influence the desired level of cash of a company b. Outline the advantages and disadvantages of using short term debt, as opposed to long term debt, in the financing of working capit. 1 c. Why cash flows rather than profits are most desirable in financial management? d. Explain the term "agency relationships" and discuss the conflicts that might exist in the relationship between' i) Shareholder and managers ii) Shareholders and creditors What steps may be taken to overcome these conflicts? (.arrow_forwardIf you are the CFO of a multinational company. What steps could you take to minimize international risk? Describe how cash flows are used to minimize political risk.arrow_forwardExplain 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_forward
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