Questions and Problems

Changes in Target Cash Balances Indicate the likely impact of each of the following on a company's target cash balance. Use the letter I to denote an increase and D to denote a decrease. Briefly explain your reasoning in each case.

a. Commissions charged by brokers decrease.

b. Interest rates paid on money market securities rise.

c. The compensating balance requirement of a bank is raised.

d. The firm's credit rating improves.

e. The cost of borrowing increases.

f. Direct fees for banking services are established.

Using the BAT Model Given the following information, calculate the target cash balance using the BAT model:

Annual interest rate

6%

Fixed order cost

$9

Total cash needed

(Questions 1-10)

How do you interpret your answer?

Opportunity versus Trading Costs White Whale Corporation has an average daily cash balance of $300. Total cash needed for the year is $30,000. The interest rate is 5 percent, and replenishing the cash costs $6 each time. What are the opportunity cost of holding cash, the trading cost, and the total cost? What do you think of White Whale's strategy?

Ross et al.: Fundamentals of Corporate Finance, Sixth Edition, Alternate Edition

VII. Short-Term Financial Planning and Management

20. Cash and Liquidity Management

© The McGraw-Hill Companies, 2002

Credit Repair Strategies Revealed

Credit Repair Strategies Revealed

Are you falling off in Debt? Stuck in a bad Credit? Undergoing much hassle with those hard & frequent Credit Calls? … Or maybe you are just now experiencing hard time to secure any loans for yourself? - Then this may be the most important letter you'll ever read for today... Discover The Insider Secret Manual That Allows You to Repair Credit score, Enjoy Your Freedom To Get Approved On Any Loans You Wants Even If You Have No Credit Building Experience Or Suffering From Deep Negative Credit History!

Get My Free Ebook


Post a comment