Question 4 XY Company wants to determine its cash position for the next year. It plans to make $500 million cash and proposes to spend between $340 million and $360 million in its operations. There were times when the cost of operation maybe as low as 95% of $340 million or as high as 105% of $360 million. The rest of the $500 million is typically used to invest in other projects or used as cash reserve.

(a) According to established theories, explain how the company should go about allocating the $500 million in expected cash flow. (8 marks)

(b) XY Company has a number of options to collect the $500 million in expected cash using float arrangements. Explain the various float options and select the most appropriate option for the company, given that it is a utility company. (12 marks)