Homework Wk 3 Assignment Example | Topics and Well Written Essays - 750 words

Homework Wk 3 - Assignment Example a. US Treasury Bills – Although it is the most liquid short-term security it is considered as risk-free investment. This could lead to potential disadvantage for corporations’ cash management because the yields of these securities are nominal that may not be sufficient for current cash requirements. b. Ordinary Preferred Stock – It allows a company to raise capital without diluting voting rights where the investor is eligible to receive regular dividends. This is in contrast to the nature of pure equity where investor shares risk of firm. This would require regular cash outflow by the firm. c. NCDs – They allow the companies to raise capital from investors by promising returns at specified rate of interest on deposit. NCDs also allow the investor to trade security in stock markets so that investor may exit the option before maturity. But when the corporation is not able to earn regular cash as a result of which its weighted average cost of capital exceeds interest earned then NCDs may become a burden for the corporate. d. Commercial Papers – They are issued by corporations having good credit ratings and market reputation allowing them to raise capital from investors directly without any intermediary (like banks). This reduces the cost of borrowing but requires company to repay investor at own expense. From given information if the cost of carrying per phone is $26 per year and fixed order cost is $340 then carrying cost per phone is approximately 13.08 (that is, 340/26) and total carrying cost for 740 phones is approximately $9676.92 (that is, 13.08 x 740). From the above calculations it is clear that the company should increase order size as the storage cost is cheaper than cost of carry. Also, the optimal inventory policy would require the company to produce 38 phones [since, √ [2 x 740 x (340/26)] = 38.04]. JIT inventory management system allows manufacturer to eliminate