IV-Working Capital Mngmt-4

Question 1

Sources of Liquidity

1. Primary
2. `secondary

Answer 1

1. payment collection, investment income, etc
2. negotiating debts, liquiditing assets, bankrupcy protection/reorganization

Question 2

2 factors influence liquidity position

1. drag 3
2. pull 4

Answer 2

1. Drag: 来不了

uncollected receivables

obsolete inventory

tight credit

2. pull: 钱出太快

pay early

reduced credit limits

limits on short term credit lines

low liquidity position

Question 3

【cash mngm - investment】

1. rmm
2. bond equivalent yield
3. discount-basis yield

Answer 3

rmm=(F-P)/P* (360/t)

BEY= (F-P)/P* (365/t)

Rdb= (F-P)/F * (360/t)

Question 4

For a 91-day $100,000 US T-bill sold at a discount rate of 7.91%, calculate BEY

Answer 4

1. purchase price: 100,000- [(7.91%)*(91/306)*100,000]

=$98,000.53

2. BEY=[(100,000-98,000)/98000]*(365/91)

Question 5

【cash mngm - investment】

strategies

Answer 5

1. passive strategy
2. laddering strategy
3. active: matching/ mismatching

Question 6

【receivables mngm】

1. float factor: definition
2. equation

Answer 6

1. float在天上的时间between payment made and usable by company
2. float factor=AVG daily float/AVG daily deposit

=avg daily float/(total amount deposit/#of days)

Question 7

【inventory mngm】

weighted avg collection period calculation

Answer 7

Question 8

【payables mngm】

cost of trade credit

terms: 1/10, net 30, paid on 20th day

Answer 8

cost of trade credit = R

R^10/365=100/00

R=1.4432

cost: 44.32%

Question 9

【cash mngm - funding】

sources of fund

1. bank 6
2. non-bank

Answer 9

1. lines of credit
2. committed line of credit (commitment fee)
3. revolving line of credit
4. asset collateral
5. banker’s acceptance: in foreign trade
6. Factoring: ABS (small firms weak credit)
7. non-bank finance company
8. commercial paper (for big company, lower cost than bank)

Question 10

【cash mngm - funding claculation】

1. cost of committed credit line
2. cost with interest all inclusive
3. cost with interest, dealer’s commission, backup cost all inclusive

Answer 10

1. cost= (interest+commitment fee)/loan amount
2. cost = interest/ (loan amount - interest)
3. cost= (interest+dealer’s commission+backup cost)/ (loan amount-interest)

Question 11

【cash mngm - fund calculation】

1. borrow 5000 for one month at 6.5% credit with 1/2 percent commitment fee
2. borrow 5000 for one month with dealer’s comission of 1/8 percent, backup line cost of 1/4 percent, 6.15% credit

Answer 11

1. cost=(6.5%*5000*1/12)+(0.5%*5000*1/12)/5000
2. cost=(6.15%*5000*1/12)+(0.125%*1/12*5000)+(0.25%*5000*1/12)/(5000-5000*6.15%*1/12)

Question 12

【cash mngm】

purpose

Answer 12

1. analysze cash inflows and out flows to forcast future needs for cash
2. have sufficient cash, but avoid too much excess cash