A pharm firm has a yearly net cash flow from operations that is distributed normally with a mean of $100 million and a standard deviation of $35 million. The firm pays an annual dividend of $50 million to its shareholders.
• What’s the firm’s Cash Flow at Risk (CFaR) if the confidence level is 97.5%, i.e., the cash flow loss relative to the mean, such that there is only a 2.5% chance of losing more than the mean cash flow minus the CFaR?
• How much cash and/or liquid assets would the firm need to keep on hand to pay the dividend if it were to suffer a shortfall equal to $800?
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