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Chapter
McGraw-Hill/Irwin
Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Outline
Working capital management Current asset management Asset financing Long-term versus short-term financing Risk and profitability vis--vis asset financing Expected value analysis may sometimes be employed
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6-3
6-5
6-9
Quarterly Sales and Earnings Per Share, Target and Limited Brands
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Point-of-Sales Terminals
Retail-oriented firms use new, computerized inventory control systems linked online
Digital inputs or optical scanners
Helps adjust orders or production schedules
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6-16
Sales Forecasts, Cash Receipts, and Payments, and Cash Budget (contd)
Table 6-3 is created to examine the buildup in accounts receivable and cash
Sales forecast: Based on assumptions taken earlier (table 6-1) Cash receipts: 50% cash collected during the month of sale and 50% pertains to the prior month Cash budget: a comparison of cash receipt and payment schedules to determine cash flow
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Cash Budget and Assets for II Year With No Growth in Sales ($millions)
Graphic presentation of the current asset cycle.
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Exercises
11th Edition Problem 16 13th Edition Problem 19
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Patterns of Financing
Selection of external sources to fund financial assets is an important decision The appropriate financing pattern:
Matching of asset buildup and length of financing pattern
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Alternative Plans
It is important to consider other alternatives
The challenge of constructing a financial plan is to prioritize the current assets into temporary and permanent The exact timing of asset liquidation, even in the light of ascertaining dollar amounts is onerous It is also difficult to judge the amount of shortterm and long-term financing available
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Long-Term Financing
Firms can be assured of having adequate capital at all times:
Use long-term capital to cover part of the shortterm needs Long-term capital can be used to finance:
Fixed assets Permanent current assets Part of the temporary current assets
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Expectations hypothesis
Yields on long-term securities is a function of short-term rates
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Expected value
Represents the sum of the expected outcomes under both conditions
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