The March 4, 2010, edition of the Wall Street Journal Online contains an article by Jeffrey McCracken and Tom McGinty entitled “With Fistfuls of Cash, Firms on Hunt.”
Instructions
Read the article and answer the following questions.
(a) How much cash did the nonfinancial (that is, nonbank-like) firms in the Standard and Poor’s 500 have at the end of 2009? How big an increase in cash did this represent over the prior year?
(b) What reasons are given in the article for why companies might not want to keep hoarding cash?
(c) What steps did Alcoa take to try to increase the company’s cash? Were these efforts successful?
(d) Often, companies issue shares of stock to acquire other companies. This represents a significant non cash transaction. At the time the article was written, why were many companies using cash rather than stock to acquire other companies?
(e) In addition to acquisitions, what other steps can companies take to reduce their cash balances?