Liquidity Target: Closing Cash Balance in any month should be at least 1.5 times Total Expenses in subsequent month.
Why this example?
Cost reduction is a critical solution available to management reduce and even eliminate cash deficits.
In this example we shall see the impact on cash balances when the cost of purchasing licenses is reduced.
The aim is for management to obtain a unit purchase cost that will eliminate the cash deficit in August Y2. However in real life the supplier may be unwilling to reduce his price and hard negotiations may ensue. We are assuming that a compromise has been reached whereby the supplier accepts the cost reduction, provided that the planned sales are achieved.This will enable the supplier’s product to establish a good positioning in such an important market.
The following procedure
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