Deck 16: Working Capital Management and Banking Relationships

Question 1

Identify the reasons that a health care organization needs cash on hand.

A) For emergencies
B) To pay employees higher salaries
C) To subsidize clients that cannot pay full price
D) To take advantage of unexpected investment opportunities
E) For normal transaction purposes

Answer 1

A, D, E

Question 2

Not all excess cash should be invested in higher earning assets; although this reduces return on the cash, it also reduces costs that arise from not having cash on hand (such as late fees). Explain your answer.

Answer 2

True
Some cash should be kept on hand. The key is to maintain the correct balance between too much and too little.

Question 3

What are two tools that managers use to manage working capital?

Answer 3

Cash flow projections, Receivables aging.

Question 4

Describe just in time (JIT) inventory? What are some of the costs and benefits?

Question 5

What is the implicit interest rate for an organization that takes a discount of 1/10 N/25 on a $13,000 invoice?