1. The management at Smith and Teabury Co. wants to continue its internal discus

Question

1. The management at Smith and Teabury Co. wants to continue its internal discussions related to its cash management. One of the finance team members presents the followinf case it his cohorts:

Which of the following repsonses to the CFO's statement is most accurate?

a. The CFO's approximation of length of the bank loans should be accurate, because it will take 75 days for the company to manufacture, sell, and collect cash for its goods. All these things must occur for the company to be able to repay its loans from the bank.


b. The CFO is not taking into account the amount of the time the company has to pay its suppliers. Generally, there is a certain length of the time between the purchase of materials and labor and the payment of cash for them. The CFO can reduce the estimated length of the bank loan by this amount of time.

Case In Discussion Tull Cybermatic Corp's management plans to finance its operations with bank loans that will be repaid as soon as cash is available. The company's management expects that it will take 40 days to manufacture and sell its products and 35 days to receive payment from its customers. Tull Cybermatic Corp.'s CFO has told the rest of the management team that they should expect the length of the bank loans to be approximately 75 days.

Explanation / Answer

Answer:-

The CFO is not taking into account the amount of the time the company has to pay its suppliers. Generally, there is a certain length of the time between the purchase of materials and labor and the payment of cash for them. The CFO can reduce the estimated length of the bank loan by this amount of time.

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