Arctic Blast has developed a cold treatment process for killing home-invading ants and termites. Their pesticide free

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Arctic Blast has developed a cold treatment process for killing home-invading ants and termites. Their pesticide free process provides a highly attractive alternative to sprays and poisons. The business is growing quite rapidly and they are investing heavily in new equipment. Frank Miller is Arctic's treasurer and he is preparing a cash budget. The budget reveals that the company can anticipate periods of cash flow difficulties as they attempt to finance ever increasing amounts of receivables, inventories, and equipment.

Frank is evaluating the merits of eight alternative cash management strategies. Each has a potential downside that Frank must consider. Match each item in the "strategy" list with one of the "hazards."

Strategy

Borrowing money 

Attempting to accelerate customer collections 

Delaying payments 

Writing checks against future receipts not yet deposited 

Slowing expansion plans 

Establishing bank overdraft protection or a line of credit 

Issuing additional capital stock 

Planning full utilization of cash flows, with no reserves

Hazard

May necessitate offering of a discount 

May result in unnecessary financing costs 

May dilute ownership of existing shareholders 

May alienate key suppliers 

May result in unexpected shortfall 

May be an illegal strategy 

May give competitors an advantage 

May result in risk of financial failure

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Financial Accounting

ISBN: 9781456352974

1st Edition

Authors: Dr. Larry M. Walther

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