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Corporate Finance - Excess Cash Management

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17.2 What options are available to a firm if it believes it has too much cash? How about too little?

17.8 For each of the short-term marketable securities given here, provide an example of the potential disadvantages the investment has for meeting a corporation's cash management goals.

a. U.S. Treasury bills
b. Ordinary preferred stock
c. Negotiable certificates of deposit (NCDs)
d. Commercial paper

17.11 Another option usually available for dealing with excess cash is to reduce the firm's outstanding debt. What are the advantages and disadvantages of this use of excess cash?

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Solution Summary

The solution explains how to manage excess cash and the instruments that are available for short term investment.

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17.2 What options are available to a firm if it believes it has too much cash? How about too little?

If the firm believes it has too much cash it has the following options
1. Reduce borrowing by paying off short term loans.
2. Invest the excess cash in marketable securities
3. Pay off the suppliers early if there is a possibility of taking cash discounts
4. Give higher dividends or buy back stock
If the firm has too little, then it needs to conserve cash and its options are
1. Set up lines of credit to take care of cash requirements
2. Collect its ...

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