CIMAPRA19-F03-1 Exam - Topic 4 Question 11 Discussion

Question

A listed company in the retail sector has accumulated excess cash.

In recent years, it has experienced uncertainly with forecasting the required level of cash for capital expenditure due to unpredictable economic cycles.

Its excess cash is on deposit earning negligible returns.

The Board of Directors is considering the company's dividend policy, and the need to retain cash in the company.

Which THREE of the followingare advantages of retaining excess cash in the company?

Salome · Accepted Answer

C) The company will be in a position to respond promptly to unexpected investment opportunities. and D) Liquidity problems are less likely to be experienced if there is a downturn in business. and E) The market may interpret the return of excess cash as a sign of weak growth prospects.

Salome · Answer

A) Retaining excess cash may make the company vulnerable to hostile takeover.

Salome · Answer

B) The excess cash is earning a negligible return.