XYZ firm has $10 million in extra cash it does not plan on needing for three...

XYZ firm has $10 million in extra cash it does not plan on needing for three months. The cash does include some contingency funds that are kept if unexpected funds needs arise. Your boss asked you to suggest a money market investment for the firm. Prepare a memo to them explaining different types of money market investments available and the pros and cons of investing in each.

Solutions

Expert Solution

MEMO

TO. XYZ FIRM

FROM.

DATE

SUBJECT suggestions to invest the idle cash in money market

Sir

This is to inform you that our firm has $10 million as extra cash , here are some suggestions to invest them in money market investment

1. Commercial paper- it is a insecured short term corporate debt, generally issued at a discounted value on face value. It is issued for financing working capital like receivables, inventory etc with a duration of 30-270 days .

Pros highly liquid, convenient to issue

Cons - needrisk management, interest rate may be variable.

2. Bankers acceptance- it is a short term investment plan which is backed by bank and it is guarantee by bank , hence it is highly secured investment. with a maturity of 30-189 days , it is similar to bills of exchange . It is issued by firms to finance export, imports and other trade .

Pros highly secured , no need to hold it until maturity.

Cons not all firms can invest , it includes complicated procedure.

3. Other investment includes , mutual funds of different companies, savings schemes for corporate firms and other bank short term investment like fixed deposit.

Pros highly liquid and convenient

Cons low interest and high risk

Please refer to above investment plans and evaluate which is the better option to invest

Regards

Rahul Sunny answered 2 years ago

Next > < Previous

Related Solutions

NBM has $2 million of extra cash. It has two choices to make use of the...

NBM has $2 million of extra cash. It has two choices to make use of the cash. One alternative is to invest the cash in financial assets. The resulted investment income will be paid out as a special dividend at the end of three years. In this case, the firm can invest in Treasury bills yielding 7%, or an 11% preferred stock. The tax law says only 30% of the dividend from the preferred stock investment would be subject to...

XYZ is a company that does business in Brisbane. XYZ has 1 million semi-annual coupon bonds...

XYZ is a company that does business in Brisbane. XYZ has 1 million semi-annual coupon bonds with a face value of $1000 each. At present, its bonds trade at 110% of par. The yield to maturity of the bonds is quoted at 7.5% per annum. The bonds have a coupon rate of 8.0% per annum and 15 years to maturity. The company has 150 million ordinary shares outstanding and a beta of 1.30. It currently trades at $25 per share....

You are valuing a firm that does not plan to pay dividends for the next 10...

You are valuing a firm that does not plan to pay dividends for the next 10 years. Starting year 11, the company will pay a constant dividend of $1 per share. The discount rate for the stock of the firm is 12%. What is the fair value of the firm? $12.98 $5.71 $8.33 $2.68

MIDSTRATA Co. has $3 million of extra cash after taxes have been paid. It has two...

MIDSTRATA Co. has $3 million of extra cash after taxes have been paid. It has two choices to make use of this cash. First alternative is to invest the cash in financial assets. The resulting investment income will be paid out as a special dividend at the end of three years. In this case, the firm can invest in Treasury bills yielding 3% or a 5% preferred stock. CRA regulations allow the company to exclude from taxable income 100% of...

A DI has assets of $17 million consisting of $7 million in cash and $10 million...

A DI has assets of $17 million consisting of $7 million in cash and $10 million in loans. It has core deposits of $13 million. It also has $2 million in subordinated debt and $2 million in equity. Increases in interest rates are expected to result in a net drain of $1 million in core deposits over the year. a-1. The average cost of deposits is 2 percent and the average yield on loans is 5 percent. The DI decides...

In 10 years, a firm will have annual cash flows of $100 million. Thereafter, its cash...

In 10 years, a firm will have annual cash flows of $100 million. Thereafter, its cash flows will grow at the inflation rate of 3%. If the applicable interest rate is 8%, estimate its value if you will sell the firm in 10 years? What would this be worth today? Show your work.

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...

Natsam Corporation has $250 million of excess cash. The firm has no debt and 500 million...

Natsam Corporation has $250 million of excess cash. The firm has no debt and 500 million shares outstanding, with a current market price of $15 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...

MIDSTRATA Co. has $3 million of extra cash after taxes have been paid. It has two choices to make use of this cash.

12. Plainbank has $10 million in cash and equivalents, $30 million in loans, and $15 million...

12. Plainbank has $10 million in cash and equivalents, $30 million in loans, and $15 million in core deposits. a. Calculate the financing gap. b. What is the financing requirement? c. How can the financing gap be used in the day-to-day liquidity management of the bank?

Subjects