How could management at the annual stockholders’ meeting defend the firm’s practice of paying suppliers on time?

Personal Finance Problem

P15–17
Management of cash balance
Alexis Morris, an assistant manager at a local department store, gets paid every 2 weeks by direct deposit into her checking account. This account pays no interest and has no minimum balance requirement. Her monthly income is $4,200. Alexis has a “target” cash balance of around $1,200, and whenever it exceeds that amount, she transfers the excess into her savings account, which currently pays 2.0% annual interest. Her current savings balance is $15,000, and Alexis estimates that she transfers about $500 per month from her checking account into her savings account. Alexis doesn’t waste any time in paying her bills, and her monthly bills average about $2,000. Her monthly cash outlay for food, gas, and other sundry items totals about $850. Reviewing her payment habits indicates that on average she pays her bills 9 days early. At this time, most marketable securities are yielding about 4.75% annual interest.
LG 6
Show how Alexis can better manage her cash balance.

  • a. What can Alexis do regarding the handling of her current balances?
  • b. What do you suggest that she do with her monthly surpluses?
  • c. What do you suggest Alexis do about the manner in which she pays her bills?
  • d. Can Alexis grow her earnings by better managing her cash balances? Show your work.
P15–18ETHICS PROBLEM A group of angry shareholders has placed a corporate resolution before all shareholders at a company’s annual stockholders’ meeting. The resolution demands that the company stretch its accounts payable because these shareholders have determined that all the company’s competitors do so, and the firm operates in a highly competitive industry. How could management at the annual stockholders’ meeting defend the firm’s practice of paying suppliers on time?
LG 6
 

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