Chapter 3: 3DQ (page 182)
What is the significance to working capital management of matching sales and production?
An organization can keep a minimum level of inventory if the sales and production are matched.This helps in managing the working capital working capital with ease.
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Neon Light Company of Kansas City ships lamps and lighting appliances throughout the country. Ms. Neon has determined that through the establishment of local collection centers around the country, she can speed up the collection of payments by three days. Furthermore, the cash management department of her bank has indicated to her that she can defer her payments on her accounts by one-half day without affecting suppliers. The bank has a remote disbursement center in Florida.
a. If Neon Light Company has \(2.25 million per day in collections and \)1.05 million per day in disbursements, how many dollars will the cash management system free up?
b. If Neon Light Company can earn 6 percent per annum on freed-up funds, how much will the income be?
c. If the total cost of the new system is $400,000, should it be implemented?
How have new banking laws influenced competition?
What does the term structure of interest rates indicate?
Biochemical Corp. requires $550,000 in financing over the next three years. The firm can borrow the funds for three years at 10.60 percent interest per year. The CEO decides to do a forecast and predicts that if she utilizes short-term financing instead, she will pay 8.75 percent interest in the first year, 13.25 percent interest in the second year, and 10.15 percent interest in the third year. Determine the total interest cost under each plan. Which plan is less costly?
In the management of cash and marketable securities, why should the primary concern be for safety and liquidity rather than maximization of profit?
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