Management: Planning for the Future
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1. Managers have to plan for the future. Assume your firm is a small to midsize not-for-profit organization and that you rely on the percent of sales method of forecasting. What, if any, are the shortcomings of this forecasting technique?
2. Why would a cash budget be of particular importance to a firm that experiences seasonal fluctuations in sale?
3. Mini Case: Greg Dye Inc. is a successful wholesaler of Speedo bathing suits. He has seasonal needs for working capital. He is planning his firm's short-term financing strategy for the next six months. He anticipates either one of two situations arising:
1. The firm will need $40,000,000 for six months
2. The firm will need $40,000,000 for only three months.
Greg, however, must plan for either situation since there is an equal likelihood that either event will occur.
One possible source of funds is commercial paper. He has been informed that his firm may issue $42,190,000 worth of commercial pper and receive $40,000,000. The paper will be due at the end of six months. A second possibility is to borrow from the First Bank of Edison, which offers a line of credit with an annual interest rate of 9.5% and an origination fee of 2%. A competing bank, Taitsman Trust Company, offers revolving credit of $50,000,000 at 9% but with a fee on the unused balance of 0.5% paid at the end of 6 months.
Which alternative should Greg Dye Inc take? Defend your answer.
4. Your unit was just assigned a new college grad to determine the optimal order quantity for your organization. She simply plugged some numbers into the EOQ method described in the text and said that your outfit should order 10,000 rounds of ammunition at a time. What assumptions did this person make that might not be applicable to your unit?
5. You work for a national charity. It appears that it is taking too long for contributions to make their way into your bank account. What suggestions can you make to speed up your collections?
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This solution answers various questions regarding business management.
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1. Managers have to plan for the future. Assume your firm is a small to midsize not-for-profit organization and that you rely on the percent of sales method of forecasting. What if any are the short comings of this forecasting technique?
The shortcomings of using the percent of sales method of forecasting is because an initial assumption of sales is made to predict that the future will be similar to the past; however, the past does not always equal the future in sales.
2. Why would a cash budget be of particular importance to a firm that ...
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