6. Cash balances The importance of managing cash in hand Cash is considered an idle asset because it does not earn interest. Good financial management requires a firm to hold a limited amount of cash, but it is important for the firm to hold sufficient cash so that it can pay its current obligations, maintain its credit rating, and meet its unexpected cash needs. The following statement refers to a type of cash balance. Select the best type of cash balance to complete the sentence: A cash balance is held to take care of the firm's day-to-day operations, such as paying wages and purchasing supplies. Consider the following case of Portland Fabricators Inc.: Imagine that Portland Fabricators Inc. is a manufacturing company. In the past, Portland Enterprises has suffered from poor cash management. In particular, situations arose in which the firm did not have the necessary cash on hand to pay its suppliers, resulting in serious penalties for late payment. The firm was not in financial distress; it merely hadn't managed its cash flow properly to have the required funds on hand. What type of cash balance should Portland pay more attention to in order to avoid these problems? Transactions Precautionary Speculative Compensating 7. Accounts receivable Effective credit management involves establishing credit standards for extending credit to customers, determining the company's terms of credit, and setting up procedures for invoicing and collecting past-due accounts. The following statement refers to a credit management policy. Select the best term to complete the sentence. The conditions of the credit sale, including cash discounts and due dates, are indicated by the company's Consider the case of Wizard Co.: Wizard Co.'s CFO has decided to take a closer look at the company's credit policy. Wizard Co. has annual sales of $384.4 million, and it currently has an accounts receivable balance of $45.9 million. The first step in analyzing the firm's credit policy is to determine its days sales outstanding (DSO). Based on this information, Wizard Co.'s DSO is (Note: Use 365 days as the length of a year in all calculations. Do not round intermediate calculations. Round your answer to one decimal place.) The average DSO for Wizard Co.'s industry is 53.4 days. Assuming that its sales stayed the same, what would be Wizard Co.'s receivables balance if it maintained the industry average DSO? (Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar.) Wizard Co.'s CFO thinks that the company has not done a very good job of enforcing its credit policy. The CFO believes that if the company were to better enforce its credit policy, it would reduce its DSO to 30 days; however, this will cause Wizard Co. to lose 5% of its sales revenue. What would Wizard Co.'s expected accounts receivables balance be if it decides to tighten its credit policy? (Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar.) $33,016,275 $30,014,795 $31,515,535 14 (Note: Use 365 days as the length of a year in all calculations. Do not round intermediate calculations. Round your answer to one decimal place.) The average DSO for Wizard Co.'s industry is 53.4 days. Assuming that its sales stayed the same, what would be Wizard Co.'s receivables balance if it maintained the industry average DSO? (Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar.) Wizard Co.'s CFO thinks that the company has not done a very good job of enforcing its credit policy. The CFO believes that if the company were to better enforce its credit policy, it would reduce its DSO to 30 days; however, this will cause Wizard Co. to lose 5% of its sales revenue. What would Wizard Co.'s expected accounts receivables balance be if it decides to tighten its credit policy? (Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar.) $33,016,275 $30,014,795 $31,515,535 $28,514,055