BUSI 2504 Study Guide - Weighted Arithmetic Mean, Dividend Tax, Preferred Stock

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Lo1 the importance of float and how it affects the cash balances. Lo2 how firms manage their cash and some of the collection, concentration, and disbursement techniques used. Lo3 the advantages and disadvantages to holding cash and some of the ways to invest idle cash. Answers to concepts review and critical thinking questions. 8. (lo3) if it has too much cash it can simply pay a dividend, or, more likely in the current financial environment, buy back stock. If it has insufficient cash, then it must either borrow, sell stock, or improve profitability. (lo3) it is debatable whether holding enormous cash reserves is the best way to deal with future economic downturns. This price stability, along with the dividend tax exemption, makes so-called adjustable rate preferred stock very attractive relative to interest-bearing instruments. (lo3) a. About the only disadvantage to holding t-bills are the generally lower yields compared to alternative money market investments.