When a company has excess funds, it has four options. Describe these o

When a company has excess funds, it has four options. Describe these options. What is the simplest thing to do with excess cash?

What will be an ideal response?

ANSWER

Answer: First, you can put the excess fund in a savings account or invest them in marketable securities. Second, you can repay lenders and owners (retire debt early or pay extra dividends). Third, you can replace aging assets. Fourth, you can invest in the company by accepting positive net present value projects. The simplest thing to do with excess cash is to keep it in cash ready to be used or to put it in marketable securities that have short maturity dates.