Question

Arctic Blast has developed a cold treatment process for killing home-invading ants and termites. Its pesticide-free process provides a highly attractive alternative to sprays and poisons. The business is growing quite rapidly, and it is investing heavily in new equipment. Frank Miller is Arctic's treasurer, and he is preparing a cash budget. The budget reveals that the company can anticipate periods of cash flow difficulties as they attempt to finance ever increasing amounts of receivables, inventories, and equipment. Frank is evaluating the merits of eight alternative cash management strategies. Each has a potential downside that Frank must consider. Match each item in the "strategy" list with one of the "hazards."
Strategy
Borrowing money
Attempting to accelerate customer collections
Delaying payments
Writing checks against future receipts not yet deposited
Slowing expansion plans
Establishing bank overdraft protection or a line of credit
Issuing additional capital stock
Planning full utilization of cash flows, with no reserves
Hazard
A May necessitate offering of a discount
B May result in unnecessary financing costs
C May dilute ownership of existing shareholders
D May alienate key suppliers
E May result in unexpected shortfall
F May be an illegal strategy
G May give competitors an advantage
H May result in risk of financial failure

Answer 1

Borrowing money: B May result in unnecessary financing costs

Attempting to accelerate customer collections: A May necessitate offering of a discount

Delaying payments: D May alienate key suppliers

Writing checks against future receipts not yet deposited: F May be an illegal strategy

Slowing expansion plans: G May give competitors an advantage

Establishing bank overdraft protection or a line of credit: H May result in risk of financial failure

Issuing additional capital stock: C May dilute ownership of existing shareholders

Planning full utilization of cash flows, with no reserves: E May result in unexpected shortfall