Question

Please answer 17.3

therefore: EOQ = V2T XF -1/(2 X 48,000) < $10 = V960,000 = 979.80 units We can check this by noting that the average inventory is about 490 CPUs, so the carrying cost is $490. Heusen will have to reorder 48.000/979.8 = 49 times. The fixed order cost is $10, so the total restocking cost is also $490. CAL THINKING AND CONCEPTS REVIEW LO 1 LO1 17.1 Cash Management. Is it possible for a firm to have too much cash? Why would shareholders care if a firm accumulates large amounts of cash? 17.2 Cash Management. What options are available to a firm if it believes it has too much cash? How about too little? 17.3 Agency Issues. Are stockholders and creditors likely to agree on how much cash a firm should keep on hand? LO 1

Answer 1

No. A creditor wants to have a lot of cash on hand, because his likelihood of getting repaid in a timely manner depends upon firms cash balance. The cash in hand can ease the process to supply the raw material. The high amount of cash in hand will benefit the creditors. If firms run low on cash, no matter how good your long term prospects are there is a chance they won't get repaid.A stockholder takes a long term view and wants firms to invest the cash as productively as possible.so they don’t want to keep high cash because they expect that company will invest more cash and get return on cash rather than keep cash idle with the company as cash in hand. So the management of the company should keep cash according to creditors and well as shareholder expectation

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