公司理财第27章

Chapter 27: Short-Term Finance and PlanningCONCEPT QUESTIONS – CHAPTER 2727.2 •What is the difference between net working capital and cash?Net working capital includes not only cash, but also other current assets minus current liabilities.•Will net working capital always increase when cash increases?No. There are transactions such as collection of accounts receivable that increase cash but leave net working capital unchanged. Any transaction that will increasecash but produce a corresponding decrease in another current asset account or an increase in a current liability will have the same effect.•List the potential uses of cash.1.Acquisition of capital2.Acquisition of marketable securities3.Acquisition of working capital4.Payment of dividends5.Retirement of debt6.Payment for labor, management and services rendered•List the potential sources of cash.1.Sale of services or merchandise2.Collection of accounts receivable3.Issuance of debt or stock4.Sale of marketable securities5.Sale of fixed assets6.Short-term bank loans7.Increased accrued expenses, wages, or taxes.27.3•What does it mean to say that a firm has an inventory-turnover ratio offour?It means that on average the inventory is kept on hand for (365 days per year/4times per year) = 91.25 days.Describe operating cycle and cash cycle. What are the differences betweenthem?The operating cycle is the period of time from the acquisition of raw material until the collection of cash from sales. It includes conversion of raw materialsinto finished goods, inventories, sales and collection of accounts receivable. The cash cycle is the period of time from the cash payment for raw materials to the collection of cash. The difference between the two is the accounts payable stage,the time between the acquisition of raw materials and the cash payment forthem.27.4•What keeps the real world from being an ideal on where net working capitalcould always be zero?A long-term rise is sales level will result in permanent investment in currentassets. In addition, any day-to-day and month-to-month fluctuation in the levelof sales will produce a nonzero NWC.• What considerations determine the optimal compromise between flexibleand restrictive net-working-capital policies?1.Cash reserves: How much cash does management want?2. Matching of asset and liability maturity (maturity hedging)3. Term structure: The difference between short-term and long-term interestrates27.5 •How would you conduct a sensitivity analysis for Fun Toys’ net cash balance?By determining the net cash balance under different scenario assumptions – changing factors that will affects net cash balance and figuring out the result.•What could you learn from such an analysis?It will give you an idea of what the range of net cash balances will be under the differentscenarios and how sensitive the net cash balance is to each of the factors that affectit.27.6 •What are the two basic forms of short-term financing?Unsecured bank borrowing and secured bank borrowing.•Describe two types of secured loans.1.Accounts receivable financing. In this type of borrowing, accounts receivableare either assigned or factored. In the latter case receivables are actually soldat a discount.2. Trust receipt. This is one of the three types of inventory loans in which theborrower holds the inventory in “trust” for the lender.Answers to End-of-Chapter Problems27.1 Assets = Liabilities + EquityCurrent assets + Fixed assets = Current liabilities + Long-term debt + EquityNet working capital + Fixed assets = Long-term debt + EquityCash + Other current assets - Current liabilities = Long-term debt + Equity - Fixed assetsCash = Long-term debt + Equity - Net working capital (excluding cash) - Fixed assets27.2 a. Decreaseb. Decreasec. No changed. Increasee. No changef. No changeg. Increaseh. No changei. Increasej. Decreasek. Increasel. No changem. No changen. No changeo. Decreasep. Decreaseq. No changer. Decrease27.3 Sources and Uses of CashCountry Kettles, Inc.19X6Sources of cash:Cash from operationsNet income $68,600Depreciation 5,225Decrease in net working capitalIncrease in accounts payable 5,500New stock 3,000$82,325 Uses of cash:Increase in fixed assets $12,725Dividends 30,800Increase in net working capitalInvestment in inventory 3,750Increase in accounts receivable 9,750Decrease in accrued expenses 3.300Decrease in long-term debt 15,000$75,325 Change in cash balance $7,000 27.4Sources and Uses of CashS/B Corporation19X6Sources of cash:Cash from operationsNet income $83,000Depreciation 50,000Decrease in net working capitalDecrease in inventory 114,000Increase in accounts payable 23,000Increase in loans payable 376,000$646,000 Uses of cash:Increase in fixed assets $139,000 Dividends100,000Increase in net working capitalIncrease in accounts receivable 251,000 Decrease in taxes payable 132,000 Decrease in accrued expenses 11,000$633,000 Change in cash balance$13,00027.5Inventory turnover ratio = ()Costs of Good SoldAverage Inventory2004060/24=+=Receivable turnover ratio =()Credit Sales Average Receivables2403050/26=+=Accounts payable turnover ratio =200(1030)/210+=a. Operating cycle = 36543656152.1(Days)+=b. Cash cycle = 152.136510115.6(Days)-=27.6 a.The operating cycle begins when inventory stock arrives at a firm and ends when cash is collected from receivables. The operating cycle is also the sum of the cash cycle and the accounts payable period. b. T he cash cycle begins when cash is paid for materials and ends when cash is collectedfrom receivables. The cash cycle is the time between cash disbursement and cash collection.c. The accounts payable period is the length of time the firm is able to delay payment onthe purchase of manufacturing resources.27.7Cash cycle Operating cyclea. Decrease No changeb. No change Decreasec. Increase No changed. Decrease Decreasee. Increase Increasef. Decrease Decrease27.8 a. A flexible short-term financing policy maintains a high ratio of current assets tosales. The policy includes limited use of short-term debt and heavy reliance onlong-term debt.b. A restrictive short-term financing policy entails a low ratio of current assets to sales.This policy relies upon the use of short-term liabilities.c. If carrying costs are low and/or shortage costs are high, a flexible short-termfinancing policy is optimal.d. If carrying costs are high and/or shortage costs are low, a restrictive short-termfinancing policy is optimal.27.9 Shortage costs are those costs incurred by a firm when its investment in current assets islow. These costs are of two types.i. T rading or order costs. Order costs are the costs of placing an order for more cashor more inventory.ii. C osts related to safety reserves. These costs include lost sales, lost customer goodwill and disruption of production schedules.27.10 a. The current assets of Cleveland Compressor are financed largely by retainedearnings. From 19X1 to 19X2, total current assets grew by $7,212. Only $2,126 ofthis increase was financed by the growth of current liabilities. Pnew YorkPneumatic’s current assets are largely financed by current liabilities. Bank loansare the most important of these current liabilities. They grew $3,077 to finance anincrease in current assets of $8,333.b. Cleveland Compressor holds the larger investment in current assets. It has currentassets of $92,616 while Pnew York Pneumatic has $78,434 in current assets. Themain reason for the difference is the larger sales of Cleveland Compressor.c. Cleveland Compressor is more likely to incur shortage costs because the ratio ofcurrent assets to sales is 0.57. That ratio for Pnew York Pneumatic is 0.86.Similarly, Pnew York Pneumatic is incurring more carrying costs for the samereason, a higher ratio of current assets to sales.27.11A long-term growth trend in sales will require some permanent investment in current assets.Thus, in the real world, net working capital is not zero. Also, the variation across time for assets means that net working capital is unlikely to be zero at any point in time.27.12a. To solve this problem you must assume that all sales are on credit and theremaining 30% of credit sales (100% - 30% - 40%) are never collected. They arebad debts that are written off the books.Let S be the sales in December. 30% of S will be collected in December and 40% ofS will be collected in January. You are told that the balance of account receivable atthe end of December is $36,000. $30,000 of this amount is uncollected Decembersales. That amount must be the difference between S and 0.3 S. Therefore,S - 0.3S = $30,0000.7S = $30,000S = $42,857December collections = 0.3 ($42,857) = $12,857January collections = 0.4 ($42,857) = $17,143b.December January February March Credit sales $42,875 $90,000 $100,000 $120,000Collections of current month 12,875 27,000 30,000 36,000Collections of previous17,143 36,000 40,000 monthJanuary: $27,000 + $17,143 = $44,143February: $30,000 + $36,000 = $66,000March: $36,000 + $40,000 = $76,00027.131 2 3 4Sales (basic trend) 100 120 144 172.8Seasonal adjustments 0 -10 -5 15Sales projections 100 110 139 187.8Collection within month 30 33 41.7 56.34Collection next month 50 55 69.5Cash Collection from Sales 83 96.7 125.8427.14Credit sales and CollectionsPine Mulch CompanySecond Quarter, 19X5March April May June Credit sales $180,000 $160,000 $140,000 $192,000Collections of current month 80,000 70,000 96,000Collections of previous month 72,000 64,000 56,000Total Collections $152,000 $134,000 $152,000Cash BudgetPine Mulch CompanySecond Quarter, 19X5April May June Beginning cash balance $200,000 $226,000 $282,000Cash receipts:Collections 152,000 134,000 152,000Total cash available $352,000 $360,000 $434,000Cash disbursements:Pay credit purchases $65,000 $68,000 $64,000Wages, taxes, expenses 8,000 7,000 8,400Interest 3,000 3,000 3,000Equipment purchases 50,000 0 4,000Total cash disbursed $126,000 $78,000 $79,400Ending cash balance $226,000 $282,000 $354,60027.15 The considerations in determining the most appropriate amount of short-term borrowingare:i. Cash reserves. Flexible financing strategy can reduce financial distress possibility,but it may reduce the return on equity.ii. Maturity hedging. Financing long-term assets with short-term borrowing is inherently risky as short-term interest rate is more volatile.iii. Term structure. On average, long-term borrowing is more costly than short-term borrowing.27.16 Short-term external financing options include:i. unsecured loans that can be either committed or uncommitted lines of credit.ii. secured loans that include blanket inventory lien, trust receipt, field-warehouse financing etc.iii. other sources like banker’s acceptances, commercial paper, ..., etc.。