Question
In: Finance
A finance manager said: “If a firm has any excess cash, it should pay its suppliers...
A finance manager said:
“If a firm has any excess cash, it should pay its suppliers more quickly.”
Discuss the extent to which you agree with this statement.
Solutions
Expert Solution
If the firm has any excess cash, it will mean that the company is having a very high amount of liquidity in its hands but the company is not able to utilise that cash for maximization of its value because it is not having optimum opportunities in order to reinvest in order to maximize its overall value so it is having idle cash in its own hands and it is representative of loss of opportunity.
The company should be trying to pay the creditors early in order to have a better amount of credit worthiness and better credit condition because if the company is not utilising the cash in an optimum manner, then there should be some benefits associated with it and it can be related to payment to the creditors early which will be leading to discount on the payment terms in next purchasing cycle so it can have a reduction of overall costs related to the company and it will be improving its overall profits.
it is having a sound cash conversion cycle because it is holding excess cash so it should utilise the ideal cash in order to lower it's cost by payment to the creditors early.
I do agree with this statement because utilisation of the cash for payment would be leading to reduction in the overall cost.
jeff jeffy answered 2 years agoRelated Solutions
A new client has been paying its suppliers late consistently; well in excess of the suppliers’...
A new client has been paying its suppliers late consistently;
well in excess of the suppliers’ agreed credit terms. As a result,
some suppliers have begun demanding cash on delivery from the
client. You are also aware that a review of correspondence between
the new client and its bank reveals that the new client has been
experiencing cash flow problems for two years.
Required
Discuss THREE events or conditions described in the case that may
cast significant doubt on the...
When a firm initially acquires debt to help finance its operations, it is said that the firm is:
QUESTION 19When a firm initially acquires debt to help finance its
operations, it is said that the firm is:A.Increasing its marketability.B.Increasing its operating cash flows.C.Employing financial leverage.D.Increasing its liquidity.E.Spending its cash flow from assets.QUESTION 20Double taxation refers to which of the following
scenarios?A.The corporation pays taxes on revenues and expenses.B.The corporation pays taxes on earnings, and creditors pay taxes
on interest received.C.Both bondholders and shareholders must pay taxes.D.The corporation pays taxes on its earnings, and shareholders pay
taxes on dividends.E.The...
A firm has estimated its sales, purchases from suppliers, and wages and miscellaneous operating cash outlays...
A firm has estimated its sales, purchases from suppliers, and
wages and miscellaneous operating cash outlays for the first four
months of next year as follows:
Months
Sales
Purchases
Wages & Misc
January
$100,000
$60,000
$20,000
February
$102,000
$70,000
$30,000
March
$105,000
$55,000
$35,000
April
$110,000
$50,000
$25,000
It estimates that 50 percent of its sales will be for cash, and
that it will receive the remaining portion in two equal amounts at
the end of the subsequent two months....
Natsam Corporation has $ 268 million of excess cash. The firm has no debt and 525...
Natsam Corporation has $ 268 million of excess cash. The firm
has no debt and 525 million shares outstanding with a current
market price of $ 16 per share. Natsam's board has decided to pay
out this cash as a one-time dividend. a. What is the ex-dividend
price of a share in a perfect capital market? b. If the board
instead decided to use the cash to do a one-time share
repurchase, in a perfect capital market, what is the...
(a) Kim Corp. has $50 million in excess cash and no debt. The firm expects to...
(a) Kim Corp. has $50 million in excess cash and no
debt. The firm expects to generate additional free cash flows of
$40 million per year in subsequent years and will pay out these
future free cash flows as regular dividends. Kim Corp.’s cost of
capital is 10% and there are 10 million shares outstanding. Kim
Corp.'s board decided to use the entire $50 million to repurchase
shares. Assume that you own 2,500 shares of Kim Corp. stock and
that...
Corporation A has $50 million in excess cash and no debt. The firm expects to generate...
Corporation A has $50 million in excess cash and no debt. The
firm expects to generate additional free cash flows of $40 million
per year in subsequent years and will pay out these future free
cash flows as regular dividends. Corporation A's cost of
capital is 10% and there are 10 million shares
outstanding. Corporation A's board decided to use the
entire $50 million to repurchase shares. Assume that you own 2,500
shares of Corporation A stock and that Corporation A uses...
A firm has an excess cash flow of $4.8m. It had 3m shares outstanding and was...
A firm has an excess cash flow of $4.8m. It had
3m shares outstanding and was considering paying a cash
dividend, corresponding to a 40% payout. The stock traded in the
market at $88.00 per share. Assume that the average investor holds
156 shares of the company’s stock.
Note: The term “k” is used to represent
thousands (× $1,000).
Required: What would be the average portfolio value
after a re-purchase scenario?
$Answerk Do not round intermediate
calculations. Input your answer...
A firm has an excess cash flow of $4.8m. It had 3m shares outstanding and was...
A firm has an excess cash flow of $4.8m. It had
3m shares outstanding and was considering paying a cash
dividend, corresponding to a 40% payout. The stock traded in the
market at $88.00 per share. Assume that the average investor holds
176 shares of the company’s stock.
Note: The term “k” is used to represent thousands (×
$1,000).
Required: What would be the average portfolio value after a
re-purchase scenario?
$Answer Do not round intermediate calculations. Input
your answer...
Since interest rate parity holds, then MNCs should advise their subsidiaries against investing any excess cash...
Since interest rate parity holds, then MNCs should advise their
subsidiaries against investing any excess cash in a foreign
country. Is this statement correct? Explain your answer.
In a developing country, would an increase in the interest rate
always be followed with an appreciation of the country’s currency?
Explain your answer.
A U. S. firm plans to invest 75 percent of its excess cash in a
one-year British pound (GBP) deposit and the remaining 25 percent
in Indian rupees (INR)....
Natsam Corporation has $264 million of excess cash. The firm has no debt and 472 million...
Natsam Corporation has $264 million of excess cash. The firm has
no debt and 472 million shares outstanding with a current market
price of $11 per share. Natsam's board has decided to pay out this
cash as a one-time dividend.
a. What is the ex-dividend price of a share in a perfect
capital market?
b. If the board instead decided to use the cash to do a
one-time share repurchase, in a perfect capital market, what is
the price of...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- . Use the following information to calculate your company's expected return State Probability Return Boom 20%...
- You are considering the following two projects and can only take one. Your cost of capital...
- C++: Write a program that produces truth tables for the following compound propositions. Write the header...
- 1. What is the historical role of investment bankers ? Has this role changed ? Why...
- How were the original Internet requirements met through its design? What are the two main requirements...
- discuss crowdfunding on platforms: What features of the services incorporate virality? What are some of the...
- A textbook of mass 2.08 kg rests on a frictionless, horizontal surface. A cord attached to...
ADVERTISEMENT