FNCE 3P93 Study Guide - Cash Management, Dividend Tax, Cash Flow
1 Nov 2014
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Lo1 the importance of float and how it affects the cash balances. Lo2 how firms manage their cash and some of the collection, concentration, and disbursement techniques used. Lo3 the advantages and disadvantages to holding cash and some of the ways to invest idle cash. Answers to concepts review and critical thinking questions (lo3 yes. Once a firm has more cash than it needs for operations and planned expenditures, the excess cash has an opportunity cost. It could be invested (by shareholders) in potentially more profitable ways. Question 9 discusses another reason. (lo3) if it has too much cash it can simply pay a dividend, or, more likely in the current financial environment, buy back stock. If it has insufficient cash, then it must either borrow, sell stock, or improve profitability. (lo3) probably not. Creditors would probably want substantially more. (lo3) it is debatable whether holding enormous cash reserves is the best way to deal with future economic downturns.
