BUSN QUESTIONS (7F)

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A small company specializing in the sale and installationof swimming pools was profitable but devoted very little attention to management of its workingcapital. It had, for example, never prepared or used acash budget. To be sure that money was available for paymentsas needed, the fi rm kept a minimum of $25,000 in achecking account. At times, this account grew larger; ittotaled $43,000 on one occasion. The owner felt that thisapproach to cash management worked well for the smallcompany because it eliminated all of the paperwork associatedwith cash budgeting. Moreover, it enabled the fi rmto pay its bills in a timely manner.Note: In answering the questions for this situation, referboth to this chapter and Chapter 10 where we describecash budgets.question 1 What are the advantages and weaknesses ofthe minimum-cash-balance practice?question 2 There is a saying, “If it ain’t broke, don’t fi x it.” Inview of the fi rm’s present success in paying bills promptly,should it be encouraged to use a cash budget? Be preparedto support your answer. situatiOn 1The Amigo Company manufactures motorized wheelchairsin its Bridgeport, Michigan, plant, under the supervision ofAlden Thieme. Alden is the brother of the fi rm’s founder,Allen Thieme. The company has 100 employees and does$10 million in sales a year. Like many other fi rms, Amigois faced with increased liability insurance costs. AlthoughAlden is contemplating dropping all coverage, he realizesthat the users of the fi rm’s product are individualswho have already suff ered physical and emotional pain.Therefore, if an accident occurred and resulted in a liabilitysuit, a jury might be strongly tempted to favor the plaintiff .In fact, the company is currently facing litigation. A womanin an Amigo wheelchair was killed by a car on the street.Because the driver of the car had no insurance, Amigo wassued.Question 1 Do you agree that the type of customer towhom the Amigo Company sells should infl uence Thieme’sdecision regarding insurance?Question 2 In what way, if any, should the outcome of thecurrent litigation aff ect Thieme’s decision about renewingthe company’s insurance coverage?Question 3 What options does Amigo have if it drops allinsurance coverage? What is your recommendation? Purchase the answer to view it