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What are the 3 reasons a firm will keep cash on hand?
1. to take advantage of trade discounts
2. maintain its credit rating
3. meet unexpected needs.

What are the 2 basic purposes for a firm to hold cash?
1. Transactions
2. Compensation to financial institutions

Assume that a firm is evaluating whether to establish a lockbox system. The following information is available to make the decision:
The bank will charge $25,000 per year for the process and the firm will save approximately $8,000 in internal processing costs. Therefore, the estimated net additional cost of processing the receipts is $17,000 ($25,000  $8,000)
 The float for cash receipts will be reduced by an estimated two days. Therefore, the firm will receive use of the cash receipts on the average two days earlier
 Average daily cash receipts are equal to $300,000 and short term interest costs are 4%
Should the firm establish the lockbox system?
Based solely on cash flow considerations, the firm should establish the system if the interest savings is greater than the increased costs.
In this case, the amount of interest savings is measured by multiplying the increase in average funds, $600,000 ($300,000 per day * 2 days), by the interest costs 4%.
The firm will save an estimated $24,000 ($600,000 * 4%) in annual interest cost.
Therefore , the cost savings for the lockbox system is estimated to be $7,000, the savings in interest cost less the net increase in processing costs ($24,000  $17,000).
The real benefit may be even greater, because of the intangible value of the increase in internal control from having the bank process cash receipts.
This reduces the firms business risk.

What are the factors when considering Marketable Securities?
1. Minimum investment required
2. Safety
3. Marketability
4. 
5. 
 1. Minimum investment required
 2. Safety
 3. Marketability
 4. Maturity
 5. Yield

What are the factors when considering Marketable Securities?
1. Minimum investment required
2. 
3. 
4. Maturity
5. Yield
1. Minimum investment required
2. Safety
3. Marketability
4. Maturity
5. Yield

What are the factors when considering Marketable Securities?
1. 
2. 
3. Marketability
4. Maturity
5. Yield
1. Minimum investment required
2. Safety
3. Marketability
4. Maturity
5. Yield

What are the factors when considering Marketable Securities?
1. Minimum investment required
2. 
3. Marketability
4.
5. Yield
1. Minimum investment required
2. Safety
3. Marketability
4. Maturity
5. Yield

A firm has projected the following data for the two alternatives of level production and seasonal production. The firms short term interest cost is 7%
Level production Average inventory $200,000 Production costs $1,000,000
 Seasonal Production Average inventory $150,000 Production costs $1,010,000
Which alternative is preferable?
Under the level production alternative, the firm would incur an additional $3,500 (($200,000  $150,000) * 7%) in inventory holding costs, but it would also save $10,000 ($1,010,000  $1,000,000 in production costs.
Therefore, level production would be the best production alternative.
It would save the firm $6,500 ($10,000  $3,500)

