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situatiOn 1 A small company specializing in the sale and installation of swimming pools was profitable but devoted very little attention to management of its working capital. It had, for example, never prepared or used a cash budget. To be sure that money was available for payments as needed, the fi rm kept a minimum of $25,000 in a checking account. At times, this account grew larger; it totaled $43,000 on one occasion. The owner felt that this approach to cash management worked well for the small company because it eliminated all of the paperwork associated with cash budgeting. Moreover, it enabled the fi rm to pay its bills in a timely manner. Note: In answering the questions for this situation, refer both to this chapter and Chapter 10 where we describe cash budgets. question 1 What are the advantages and weaknesses of the minimum-cash-balance practice? question 2 There is a saying, “If it ain’t broke, don’t fi x it.” In view of the fi rm’s present success in paying bills promptly, should it be encouraged to use a cash budget? Be prepared to support your answer. situatiOn 1 The Amigo Company manufactures motorized wheelchairs in its B

ridgeport, Michigan, plant, under the supervision of Alden 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, Amigo is faced with increased liability insurance costs. Although Alden is contemplating dropping all coverage, he realizes that the users of the fi rm’s product are individuals who have already suff ered physical and emotional pain. Therefore, if an accident occurred and resulted in a liability suit, a jury might be strongly tempted to favor the plaintiff . In fact, the company is currently facing litigation. A woman in an Amigo wheelchair was killed by a car on the street. Because the driver of the car had no insurance, Amigo was sued. Question 1 Do you agree that the type of customer to whom the Amigo Company sells should infl uence Thieme’s decision regarding insurance? Question 2 In what way, if any, should the outcome of the current litigation aff ect Thieme’s decision about renewing the company’s insurance coverage? Question 3 What options does Amigo have if it drops all insurance coverage? What is your recommendation?