Assignment:
Q1. Assuming the firm’s sales volume remained constant, would you expect it to have a higher cash balance during a tight-money period or during an easy-money period? Why?
Q2. Explain how each of the following factors would probably affect a firm’s target cash balance if all other factors were held constant.
a. The firm institutes a new billing procedure that better synchronizes its cash inflows and outflows.
b. The firm develops a new sales forecasting technique that improves its forecasts.
c. The firm reduces its portfolio of U.S. Treasury bills.
d. The firm arranges to use an overdraft system for its checking account.
e. The firm borrows a large amount of money from its bank and also begins to write far more checks than it did in the past.
f. Interest rates on Treasury bills rise from 5 percent to 10 percent.
Provide complete and step by step solution for the question and show calculations and use formulas.