Tuesday, October 1, 2019
Financial Management Questions Essay
Question 1:            Medwig Corporation has a DSO of 17 days.  The company averages $3500 in credit sales each day.  What is the company’s average account’s receivable?            Answer / Solution:            Accounts Receivable = Days Sales Outstanding * (Sales / Days)                                                         = 17 * (3500/1)                                                         = $59,500 Question 2: Discuss some of the techniques available to reduce risk exposures?            Answer:            Insurance is one of the simplest and most available ways to reduce exposure to risk.  It involves the transfer of risk to another company.  Depending on the amount and nature of the risk involved, risk retention by self-insurance might not be a practical option, especially if the cost of transferring the risk (insurance premiums) is reasonable enough to not add significant costs.  Risk transfer is not done always through insurance, however. Outsourcing some operations to a company who agrees to take on the risk involved is another type of risk reduction.  Some tasks are best suited for specialized companies, and large organizations might outsource such activities as customer support, software development and internal security. Derivative hedging is also an option, depending on the nature of the company.  Futures contracts, for example, reduce the risk of price fluctuations in a particular commodity, and are very useful to transfer it to a speculator.  A company producing commodities would benefit from this type of hedge.            Aside from transferring risks, a company might try to reduce risk by reducing the inherent cause of the risk.  Instead of hiring a single custodian for cash transfers, a company might hire another one to reduce the risk of employee theft.            The last method is to avoid the risk completely.  This will completely circumvent possible losses, but it also precludes any possible gains from taking on the risk.
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