公司理财第28章.doc

Chapter 28: Cash ManagementCONCEPT QUESTIONS CHAPTER 2828.1 What is the transactions motive, and how does it lead firms to hold cash?It is the necessity to hold cash for disbursements to pay wages, trade debts, taxes and dividends. A firm that does not have cash for these transactions will not be able to meet its obligations. Because cash inflows and outflows are seldom synchronized, firms need cash balances to serve as a buffer. What is a compensating balance?It is the amount of cash banks require firms to keep permanently in their accounts to compensate the bank for services rendered.28.2 What is a target cash balance?It is a firms desired level of cash holdings to satisfy the transactions and compensating balance needs. What are the strengths and weaknesses of the Baumol model and the Miller- Orr model?The Baumol model is a very simple and straightforward model with sensible conclusions, but it assumes a constant disbursement rate, lack of cash receipts during the projected period, and makes no allowance for “safety stock.” It also assumes discrete, certain cash flows. The Miller-Orr model improves the understanding of the problem by determining the relationships among the different variables, but it neglects other factors that affect the target cash balance.28.3 Describe collection and disbursement float.Collection float is the time that elapses from the moment the customer mails the payment until cash is received. Disbursement float is the time that elapses from the moment a company mails a check and the time cash is withdrawn from the companys bank account. What are lockboxes? Concentration banks? Wire transfers?Lockboxes are postal boxes strategically located in such a way that the mailing time from customers to the box is minimized. The firms bank has direct access to the boxes, and thus in-house handling is eliminated and collection float is reduced. Concentration banks are regional banks in which the company has accounts and to which it sends excess cash at the end of the day. In this fashion checks obtained from nearby customers can be collected daily. Wire transfers are electronic transfers of surplus funds from local deposit banks to concentration banks. Suppose an overzealous financial manager writes checks on uncollected funds. Aside from legal issues, who is the financial loser in this situation?The bank where the firm has its accounts. Why do firms find themselves with idle cash?To finance seasonal or cyclical activities (transactions motive), to finance planned expenditures (investment motive), and to provide for unanticipated contingencies (precautionary motive). What are the types of money market securities?1.U.S. Treasury bills and notes2.Federal agency securities3.Municipal securities4.Commercial paper5.Certificates of deposit6.Repurchase agreements7.Eurodollar certificates of deposit8.Bankers acceptancesAnswers to End-of-Chapter Problems28.1 Firms need to hold cash to:a. Satisfy the transaction needs. For example, cash is collected from sales and new financing and disbursed as wages, salaries, trade debts, taxes and dividends.b. Maintain compensating balances. A minimum required compensating balance at banks providing credit service to the firm may impose a lower limit on the level of cash a firm holds.28.2 a. Decrease. Examine the Baumol model. As the interest rate (k) increases, the optimal cash balance must also rise.b. Increase. Examine the Baumol model. As brokerage costs (F, the per transaction costs) rise, the optimal balance increases.c. Decrease. Clearly, if the bank lowers its compensating balance requirement, a firm will not be required to hold as much of its assets as cash.d. Decrease. If the cost of borrowing falls, a firm need not hold as much of its assets as cash because the cost of running short, i.e. the cost to borrow to fill cash needs, is lower.e. Increase. As a firms credit rating falls, its cost to borrow increases. Thus, the firm cannot as easily afford to run short of cash and its cash balance must be higher.f.Decrease. Introduction of direct banking fees would increase the fixed costs associated with holding cash. As fixed costs rise, the optimal balance must also rise.28.3 The average weekly cash balance is $20,750 ($24,000 + $34,000 + $10,000 +$15,000)/ 4. With monthly compounding, the return that the firm can earn on its average balance is $20,750 ( 1 + 0.12/12)12 - 1 = $2,631.62Your answer may differ if you made different assumptions about the interest payments.28.4 a. The total amount of cash that will be disbursed during the year is:$345,000 * 12 = $4,140,000Using the optimal cash balance formula,$243,193 should be kept as cash. The balance, $556,807 (=$800,000-$243,193), should be invested in marketable securities.b. The number of times marketable securities will be sold during the next twelve months is $4,140,000 / $243,193 = 17 times28.528.6 Use the Miller-Orr formula.The target cash balance = The upper limit = H*=3Z*-2LThe daily opportunity cost = K=The average cash balance:28.7 a.b. Gold Star:Silver Star:So, Silver Star Co. has a more volatile daily cash flow.28.8 Garden Groves float = 150 ($15,000) = $2,250,000Increase in collected cash balance if a 3 day lockbox is installed = 3($2,250,000) = $6,750,000Annual earnings from this amount = $6,750,000 x 0.075 = $506,250The system should be installed if its cost is below this amount.Variable cost $ 0.5 x 150 x 365 = $27,375Fixed cost = 80,000Total cost =$107,375The lockbox system should be installed. The net earnings from the use of the system are $398,875 (= $506,250 - $107,375)28.9To make the system profitable, the net earnings of installing the lockbox system must be non-negative. The lower limit for acceptability is zero profits.Let N be the number of customers per day.Earnings = ($4,500) (N) (2) (0.06) = $540 x NCosts:Variable cost: N (365) ($0.25) = $91.25 x N Fixed cost: $15,000Equate Earnings to total costs: N = 33.43Salisbury Stakes needs at least 34 customers per day for the lockbox system to be profitable.28.10 Disbursement float = $12,000 x 5 = $60,000Collection float = -$15,000 x 3 = -$45,000Net float = $60,000 - $45,000 = $15,000If funds are collected in four days rather than three, disbursement float will not change. Collection float will change to -$60,000. This change makes the net float equal to zero.28.11a.Reduction in outstanding cash balances = $100,000 x 3 days = $300,000b.Return on savings = $300,000 (0.12) = $360,000c.Maximum monthly charge = $36,000 / 12 = $3,000Note: The calculation in part b assumes annual compounding. The answer in part c does not account for the time value of money. With monthly compounding of the interest earned, the return on savings at the end of the year is$300,000 (1.01)12 - 1 = $38,047.51The present value of this amount is $38,047.51 / (1.01) 12 = $33,765.23Compute the monthly payment as an annuity with a discount rate of 1% per period for twelve periods. That annuity factor is 11.2551. Thus, the payment is$33,765.23 = (Payment) (11.2551) Payment = $3,000Notice, as long as the treatment of the cash flows is the same, the payment is the same.28.12 The cash savings are the earnings from the interest bearing account. Assuming daily compounding, the three-day return to the delayed payment is ($200,000)(1.0004)3-1 = $240.096The interest rate for two weeks is 0.5615% (=(1.0004)14-1).Therefore, the present value of this annuity isThe Walter Company will save $5,793.12 per year.28.