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Week 2 Problem Set

The document outlines a problem set for a Treasury Management course, focusing on Week 2 materials and encouraging active participation in tutorials. It includes questions related to cash budgeting, changes in payables policy, shareholder concerns regarding cash accumulation, and a comparison of credit policies for Brisbane Corp. Students are advised to engage with the material and prepare for discussions in their tutorials.

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12 views2 pages

Week 2 Problem Set

The document outlines a problem set for a Treasury Management course, focusing on Week 2 materials and encouraging active participation in tutorials. It includes questions related to cash budgeting, changes in payables policy, shareholder concerns regarding cash accumulation, and a comparison of credit policies for Brisbane Corp. Students are advised to engage with the material and prepare for discussions in their tutorials.

Uploaded by

gguo0004
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Problem Set on Week 2

BFF3651: Treasury Management

Instructions:

This problem set has been designed focusing on Week 2 learning materials and will be
discussed in your 2nd tutorial.

We would encourage you to read the lecture note of week 2, listened to the recorded
lecture, and attempt the problem set before your tutorial. This framework will allow us
to ensure student-centered activities requiring intentional engagement. We encourage
you to participate actively in the tutorials, ask questions, and debate critically on the
problem sets' solutions. Your active participation is essential to ensure a deep, long-
lasting, and enjoyable learning experience.
Questions

1. The Sydney Corporation has a 60-day average collection period and wishes to maintain
a $160 million minimum cash balance. Each quarter has 90 days. Based on this and the
information given in the following cash budget, complete the cash budget. What
conclusions do you draw?
SYDNEY CORPORATION
Cash Budget
(in millions)
Q1 Q2 Q3 Q4
Beginning receivables 240
Sales 150 165 180 135
Cash collections
Ending receivables
Total cash collections
Total cash disbursements 170 160 185 190
Net cash inflow
Beginning cash balance 45
Net cash inflow
Ending cash balance
Minimum cash balance
Cumulative surplus (deficit)

2. Last month, Melbourne company announced that it would stretch out its bill
payments to 45 days from 30 days. The reason given was that the company wanted to
“control costs and optimize cash flow.” The increased payables period will be in effect
for all of the company’s 4,000 suppliers.
(i) What impact did this change in the payables policy have on the operating cycle?
(ii) What impact did the announcement have on suppliers?
(iii) Why don’t all firms increase their payables periods to shorten their cash cycles? Can
you suggest any alternative to lengthen payable payment period that will improve the
firm’s liquidity?
(iv) Precisely what is the cash benefit to Melbourne company from this change?
(v) Is it possible for a firm’s cash cycle to be longer than its operating cycle? Explain
why or why not.

3. Why would shareholders care if a firm accumulates large amounts of cash?

4. Brisbane Corp. is considering a new credit policy. The current policy is cash only. The
new policy would involve extending credit for one period. Based on the following
information, determine if a switch is advisable. The interest rate is 2.0 percent per period:
Current policy New policy
Price per unit $175 $175
Cost per unit $130 $130
Sales per period in units 1000 1100

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