Page 193 - DMGT409Basic Financial Management

Basic Financial Management

Notes 3. Venkat & Co., expects its cash flow to behave in a random manner, as it was assumed by

Miller Orr model. Venkat & Co. requested you to set an UCL and RP, with the following
information. The management of firm would like to maintain a minimum cash balance of

` 70,000. The standard deviation its daily cash balances in ` 7,000. Firm earns a 12 per cent
yield on its short-term marketable securities. Conversion of securities into cash is net cost
free it involves ` 120 (Assume 366 days a year).

4. How do you determining optimum level of cash balances? How does uncertainty of cash
balance affects this problem?

5. “Management of cash flows plays a very important role in cash management”. Discuss.

6. Briefly discuss the various avenues or opportunities available to the companies to park
their surplus funds for a short-term.

7. Efficient cash management will aim at maximizing the cash inflows and slowing cash
outflows”. Discuss.

8. “Cash budgeting or short-term cash forecasting (budgeting) is the principal tool of cash
management.” Discuss.
9. What represents the optimal cash balance for a fi rm?
10. What do you understand by Badla fi nancing?

Answers: Self Assessment

1. Current assets 2. Liquid
3. Short-term, Long-term 4. Unproductive
5. Cash planning 6. Optimum cash balance

7. False 8. True
9. False 10. True

11.11 Further Readings

Books
Chandra, P., Financial Management - Theory and Practice, New Delhi, Tata McGraw
Hill Publishing Company Ltd., 2002, p. 3.
Sudhindra Bhat, Financial Management, New Delhi, Excel Books, 2008.
Van Horne, J.C. and Wachowicz, Jr, J.M., Fundamentals of Financial Management,
New Delhi, Prentice Hall of India Pvt. Ltd., 1996, p. 2.

Online link http://www.fei.org/

186 LOVELY PROFESSIONAL UNIVERSITY