Assingment question:
Berkshire Hathaway held $ 101billion in cash at the end of 2019. similarly Apple 4269 billion in 2018. In contrast, Debenhams were among others going into administration.
You are Financial manager of Rolling Limited, a company whit 500 retail outlets selling clothing as well as groceries whit turnover of £1.5 billion and have been asked by senior management as to the criteria as to the level of cash to be held taking into account of another large retailers.
Rolling limited (not a real company).
in application parts have to be Rolling Limited industry examples.
Part A) (Total 30 marks)
Discuss the reason why Apple has a large cash balance and evaluate whether a large balance is an efficient use of resources as far as Rolling Limited is concerned.
Critically discuss:
1) Apple (15 marks)
Reasons why Apple holds large cash balances
Shortly discuss general reasons- speculative, transaction, and precautionary motives.
Repatriation tax implication.
Discuss the merits and disadvantages of those reasons (as above).
Is Apple using their resources efficiently?
Cash conversion cycle
Apple is not innovative.
Apple investment policies.
Shareholders’ objectives and alternatives.
2) Application on Rolling limited (15 marks).
Whether a large cash balance is an efficient use of resources as far as rolling Limited is concerned.
Part B) (40 marks) Critically discuss how Debenhams could have improved its liquidity position and avoided going into administration applying this to Rolling limited.
Debenhams overtrading.
To discounts discount offered.
Private Equity problem.
Part C) (30 marks)
Evaluate two key cash management models (Baumol The transaction demand for cash: An Inventory teaoretical approach and A model of demand for money by firms Miller and Orr)
Evaluate the different models (as above) and reach a conclusion.
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