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total quality management
Corporate Treasury And Cash Management 1st Edition Robert Cooper - Solutions
Are procedures for coping with facility denial fully recorded, and are these procedures regularly practised?
Are there facility denial procedures in operation? (Facility denial is the situation where due to some unforeseen circumstance such as fire, the treasury area is not accessible.)
How are holidays, promotions and resignations catered for, to ensure that all individuals take holidays and that holidays cause the minimum of disruption?
Are there job descriptions detailing individual responsibilities and authorities?
Is access to the treasury department limited?
Are all the instruments permitted within the treasury policies?
What is the credit rating attached to the different instruments?
What is the negotiability of the instrument should it need to be sold to meet cash shortages? Or will we be better borrowing separately to meet any cash shortages that arise during the period of the investment?
How will documents of title be held? What administration needs to be set up to hold these documents securely?
2. Are there circumstances where it may be cheaper to raise finance in a foreign currency – e.g. US commercial paper – and swap the proceeds to sterling (or vice versa)?
1. In selecting borrowing or depositing instruments, does the company adjust for the difference of instruments issued at a discount and those issued on a true yield basis?
3. How are surplus overseas funds handled?
2. Do we ever have to provide finance for overseas operations on an emergency basis? If so, why? How does the company handle thin capitalization rules and withholding tax in such circumstances?
1. How do overseas operations manage liquidity? Exactly the same questions and considerations raised above apply to the overseas operations(other than those applying to committed facilities).
3. Do uncommitted facilities cover the company’s needs for foreign exchange and foreign currency borrowings?
2. Are the costs of drawing under uncommitted lines regularly compared with the marginal costs of drawing under committed lines?
1. What are the levels of uncommitted facilities?How are these levels established?
3. What is the history of utilization of overdrafts?
2. Do all the principal banking pools have overdrafts?Are the limits appropriate?How is the appropriateness measured?
1. Are all bank accounts with the company’s principal bankers pooled?Are there any accounts in regular use that are not pooled?
4. Are there clear company policies regarding the level of headroom required within the committed facilities?
3. How are drawings planned under the committed facilities?(They should be planned against a cashflow forecast to ensure that drawings made are not subsequently deposited.)
2. Are the committed facility levels regularly monitored against cash forecasts?
1. How much headroom is there in the company’s committed banking facilities?
In which direction are interest rates and cash positions likely to move?
What are the different interest costs/opportunities available?
When will the cash become available to the company?
Where is the cash?
How much cash does and will the company have?
2. What are the annual cost savings from the introduction of a netting system?
1. What is each county’s net position (calculate in UK£)?
3. What kinds of documentation would you expect to have to undertake?
2. What due diligence questions should you ask?
1. What do you think the benefits of pooling might be?
How will bank charges be established? Will they be transaction-based or turnover-based? Will lifting charges apply to transactions going through the account, and will an account maintenance fee apply?
What debit interest will be charged on overdrafts?
Will credit interest be applied on any balances and if so what rate will it be? How will credit interest be calculated?
There may be requirements for minimum balances to be maintained. If so what size are these balances?
Every six months the bank will pay US$6,000,000 in advance.
Every six months the bank will pay US$6,270,000 in arrears.
Every six months the bank will expect to receive US$6,270,000 in arrears.
Every six months the bank will expect to receive US$6,000,000 in advance.
3. Five years ago a company raised US$300 million by means of a tenyear fixed rate bond.The semi-annual cost of this bond was 9 per cent and was swapped to floating whereby the company receives 9 per cent and pays LIBOR.What is the effective cost of funds for the remaining life of the bond if the
2. The treasurer of another company, a utility company, forecasts it will have core deposits of US$150 million for the next three years. They are concerned that interest rates will fall, and want to cover this risk for the next three years.What swap will the bank quote?What would be the fixed
1. The treasurer of MultiMedia Inc. is concerned that US$ interest rates will start to rise. They have a US$250 million term loan on which they pay six-month LIBOR + 50bp, and which has a further four years to maturity.What will the swap structure look like, given the fact that a bank requires an
2. What would your strategy be if you believed US$ LIBOR rates would increase more than the market anticipates?
1. What action would you take regarding the SG$ balances?
How does the lessor handle arrears? There will need to be a process for ensuring that all leases in arrears over a certain number of months are actioned.
Are all the leases only finance leases with no operating leases?
Are the lessees geographically dispersed?
What is the spread of leases between vehicle makes? Is there excessive concentration on any one make?
Is each lease contract seasoned (i.e. have repayments yet been received on the lease)?
How many lessees are there and how many lease contracts? What is the maximum number of lease contracts with one lessee? What is maximum value of one lease contract?
How large and how geographically widespread is the dealership network?
2. What issues would the rating agencies address in determining the credit worthiness of the structure?
1. What could the structure look like in outline?
What is the current condition of the market? Has there been substantial issuance recently or is the market hungry for new issues?
What is the perception of the issuer’s business sector? Are there any positive or negative factors that should be considered, such as government regulation or review?
What has been the history of other issues the issuer has had in the market? Have they been well received or is there a perception that past issues were badly priced?
What is the investor appetite for the name? Does the company have substantial bonds already out in the market or is this a maiden issue? Is the size enough to ensure good liquidity?
What is the comparison with other issues in the market for corporates of similar size and credit standing? If there is a significant difference, why is this?
What is the company’s re-financing strategy?
What will the financial structure of new organization look like(EIBTDA/interest, interest cover etc.)?
Maturity of the facility. (Typically an acquisition facility is envisaged as a bridge into capital markets.)
Certainty of funding requirement to meet stock exchange requirement.What is the cashflow profile for the next 12–18 months?
What is the market perception of the acquisition? Will the transaction be well received by the banking community?
What ancillary business is available?
What is the borrower’s credit rating (if any)?
Who is the borrower, and what is its standing and recognition in the market? Is the borrower well known to the market?
4. What structural issues would need to be considered?
3. What would be the concerns of the banks that provide the initial facility?How would they seek to manage these concerns?
2. How would you go about raising the finance?
1. What would be the size of the acquisition facility that as treasurer you would have to put together?
How strong are the arrangers’ skills? Can they deliver on their suggestions?
What is the potential arranger’s commitment to the relationship? This covers not just the relationship with the company, but the commitment the bank has to getting the transaction completed on terms that suit the client. How much reputation does the manger have to lose for ‘getting it
Does the structure of the transaction meet my company’s needs? Is the bank able to suggest other structures that may be more cost effective yet still match my company’s cashflow? Can the arranger suggest other structures that may be better received by the market?
How do the terms I am being offered compare with other transactions either currently in the market or that have just closed? This includes not just price but also any covenant packages that are being recommended, and the structure of the transaction.
How many transactions has the bank arranged? Who were the companies, what was the size and maturity? How were these deals received by the market?
What is the bank’s reputation in the market? Perhaps more importantly, what is the strength of its syndication team in the market? Is it a market leader? Does it have clout? No treasurer wants to select an arranger that appears merely to follow the market.
What are the usual terms that are found in the loan documentation?
What are the advantages and disadvantages of this type of facility?
What are the costs and fees associated with such a facility?
How are such facilities ‘put together’ or established?
2. What considerations would you bear in mind in reaching your conclusion?Leisure Time plc is a UK FTSE 250 company involved in the leisure sector.Its operations include the ownership and management of:It has recently made two acquisitions. One is a company that operates health clubs in the Far
1. How do you think the company should finance its expansion programme, with debt or equity?Leisure Time plc is a UK FTSE 250 company involved in the leisure sector.Its operations include the ownership and management of:It has recently made two acquisitions. One is a company that operates health
Its management team. Are they experienced in the business and the sector it operates in?
The business sector it operates in. Is it in a cyclical business sector where cashflows are subject to fluctuation?
The competitive environment. Does the company operate in a business with low barriers to entry?
Its market position. Does it have a dominant market position and is it able to protect its profits and cashflow in adverse conditions?
The level of operational gearing. Does it operate with a high level of fixed costs?
Design the company’s treasury policies covering debt management, foreign exchange and interest rate risk (the summary financial results are given overleaf).
What is the early warning system?
What is the residual risk remaining after the application of controls?
What is the control strategy for avoiding or mitigating the risk?
Do we wish to accept the risk?
What is the currency denomination of receivables?
Does the company have cash on deposit?
What is the fixed/floating structure of its debts?
What is the company’s financial structure? What is the maturity profile of its debts? Which markets does it raise its finance in? Has the company issued convertible bonds or debt with warrants, and are they still outstanding?
What currencies are its major assets and liabilities denominated in?
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