Read the Background Information about FirstRate Company, below. Then, explain what the companyâs treasurer should do about the draft versions of the projected financial statements and short-term cash flow forecast (prepared by him) in response to comments made by the companyâs chief financial officer (CFO) in their meeting. Do not recommend specific treasury management steps, such as selling investment securities, factoring accounts receivable, reducing operating costs, or seeking alternative financing arrangements. (The background information is not sufficient to formulate such steps, nor is there enough time to implement such steps before the CFO meets with FirstRateâs banks to discuss the financial projections and cash flow forecast). It is most important that you clearly provide the reasons for your recommendations. Background Information about FirstRate Company For nearly two decades, FirstRate has been the second largest firm in its industry, maintaining market share approaching 25 percent and generating stable, if modest, sales and net income growth. Beginning in 20X1, FirstRate began to experience intensified competition from several recent entrants into its industry, including a well-capitalized firm that expanded into FirstRateâs industry by exploiting a distribution channel it developed over many years in its original line of business. FirstRate responded to this increased crowding by "competing on price." In contrast, under its historical strategy, the company positioned itself based on brand recognition, product leadership, and personalized customer service. Along with its revised pricing strategy, FirstRate liberalized its customer credit and product return policies. In response to the effects of its revised pricing strategy on the companyâs operating performance, management immediately scaled back the companyâs product development plans, but was initially slow to critically re-examine its cost structure. FirstRate eventually reduced staff and closed some facilities as it outsourced certain production and fulfillment activities. However, the transitional costs of implementing these changes were significant. In addition, to support its revised pricing strategy, the company expanded its advertising and promotion. While FirstRateâs new strategy yielded greater-than-historical sales growth for the company, its reported net income suffered, along with its stock price. In response to the effects of these changes on FirstRateâs financial performance and condition, its lending banks increased the collateral requirements and interest rates on their loans to the company. The CFO of FirstRate Company is preparing for a meeting at one of the banks where the company been a long-time borrower. The companyâs $40 million working capital line of credit (LOC) will expire shortly. The company currently has $33.5 million in borrowings outstanding under the LOC and this balance will become due and payable in 30 days, unless the bank renews the LOC. The companyâs treasurer has just completed projected financial statements and a short-term cash flow forecast for the company. In anticipation of her bank meeting, the CFO met with the treasurer to discuss the financial projection and forecast. The CFO expressed her concern that "these will fail to make a favorable impression" on the bank. She continued, "Our recent results have already brought pressure from all of our banks. Itâs important that we have the banks in our corner while we implement our revised strategy." The treasurer responded, "Iâve prepared these [projections and forecasts] using our "best case" assumptions and estimates." The CFO replied cryptically, "Well, âsharpen your pencilâ because these are probably not going to get the job done." As the treasurer left her office, the CFO reminded him that, "We have more than a thousand employees, even more stockholders, not to mention dozens of suppliers, and our customers to take care of."

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Read the Background Information about FirstRate Company, below. Then, explain what the companyâs treasurer should do about the draft versions of the projected financial statements and short-term cash flow forecast (prepared by him) in response to comments made by the companyâs chief financial officer (CFO) in their meeting. Do not recommend specific treasury management steps, such as selling investment securities, factoring accounts receivable, reducing operating costs, or seeking alternative financing arrangements. (The background information is not sufficient to formulate such steps, nor is there enough time to implement such steps before the CFO meets with FirstRateâs banks to discuss the financial projections and cash flow forecast). It is most important that you clearly provide the reasons for your recommendations. Background Information about FirstRate Company For nearly two decades, FirstRate has been the second largest firm in its industry, maintaining market share approaching 25 percent and generating stable, if modest, sales and net income growth. Beginning in 20X1, FirstRate began to experience intensified competition from several recent entrants into its industry, including a well-capitalized firm that expanded into FirstRateâs industry by exploiting a distribution channel it developed over many years in its original line of business. FirstRate responded to this increased crowding by "competing on price." In contrast, under its historical strategy, the company positioned itself based on brand recognition, product leadership, and personalized customer service. Along with its revised pricing strategy, FirstRate liberalized its customer credit and product return policies. In response to the effects of its revised pricing strategy on the companyâs operating performance, management immediately scaled back the companyâs product development plans, but was initially slow to critically re-examine its cost structure. FirstRate eventually reduced staff and closed some facilities as it outsourced certain production and fulfillment activities. However, the transitional costs of implementing these changes were significant. In addition, to support its revised pricing strategy, the company expanded its advertising and promotion. While FirstRateâs new strategy yielded greater-than-historical sales growth for the company, its reported net income suffered, along with its stock price. In response to the effects of these changes on FirstRateâs financial performance and condition, its lending banks increased the collateral requirements and interest rates on their loans to the company. The CFO of FirstRate Company is preparing for a meeting at one of the banks where the company been a long-time borrower. The companyâs $40 million working capital line of credit (LOC) will expire shortly. The company currently has $33.5 million in borrowings outstanding under the LOC and this balance will become due and payable in 30 days, unless the bank renews the LOC. The companyâs treasurer has just completed projected financial statements and a short-term cash flow forecast for the company. In anticipation of her bank meeting, the CFO met with the treasurer to discuss the financial projection and forecast. The CFO expressed her concern that "these will fail to make a favorable impression" on the bank. She continued, "Our recent results have already brought pressure from all of our banks. Itâs important that we have the banks in our corner while we implement our revised strategy." The treasurer responded, "Iâve prepared these [projections and forecasts] using our "best case" assumptions and estimates." The CFO replied cryptically, "Well, âsharpen your pencilâ because these are probably not going to get the job done." As the treasurer left her office, the CFO reminded him that, "We have more than a thousand employees, even more stockholders, not to mention dozens of suppliers, and our customers to take care of."

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Please match the term or question with the correct answer.

- A. B. C. D. E. F. G. H. I.	Define the term opportunity cost of time.
- A. B. C. D. E. F. G. H. I.	Define the term:Behavioral financial planning
- A. B. C. D. E. F. G. H. I.	What is TPM?
- A. B. C. D. E. F. G. H. I.	Define life cycle theory?
- A. B. C. D. E. F. G. H. I.	Define Capital expenditures.
- A. B. C. D. E. F. G. H. I.	Define Pro forma Statements
- A. B. C. D. E. F. G. H. I.	An example of Economies of Scale
- A. B. C. D. E. F. G. H. I.	Why is the Total Portfolio Management approach unique?
- A. B. C. D. E. F. G. H. I.	What are operating activities?

A.	Cash outflows that provide household operating benefits for anextended period of time.
B.	The analysis of individual conduct and the development ofpractical techniques to improve financial decision making. Its goalis to educate and establish practices that close the gap betweenactual and ideal planning, thereby bringing people closer to theirown goals.
C.	A householdâs sharing of fixed costs for shelter and othergoods
D.	Individuals plan for future events using current and futurefinancial resources with the objective of smoothing fluctuations instandard of living over time and attaining predetermined goals.
E.	The day-to-day financial functions of the household.
F.	TPM is unique because it analyzes all household assets andobligations.
G.	The alternative to time spent in household work or leisure timepursuits. It indicates that the time spent on bothactivities can be compared with the money which could be earned byworking in a job.
H.	Statements that include projections.
I.	Total Portfolio Management takes all assets and liabilities intoone household portfolio including human assets, real assets, andnon-financial assets.

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