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Fundamentals of Corporate Finance, 4/c/e

Fundamentals of Corporate Finance, 4/e

Stephen A. Ross, Massachusetts Institute of Technology
Randolph W. Westerfield, University of Southern California
Bradford D. Jordan, University of Kentucky
Gordon S. Roberts, York University

Cash and Liquidity Management

Learning Objectives

After studying this chapter in the textbook, you should be able to:

List the key reasons for holding cash.

Understand the tradeoffs involved with determining the target cash balance.

Define the term float and discuss its various forms.

Discuss the most important methods of accelerating collections.

Explain what a zero-balance account is and why it is important for controlling disbursements.

List the most common money market instruments and relate them to the concept of investing excess cash.

(Appendix 19A) Use the Baumol-Allais-Tobin (BAT) model to determine the optimal cash balance.

(Appendix 19A) Use the Miller-Orr model to determine the optimal cash balance.

(Appendix 19A) Explain the key component of the Miller-Orr model that distinguishes it from the BAT model.

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