Question 1

Cow Chips,Inc.,a large fertilizer distributor based in California,is planning to use a lockbox system to speed up collections from its customers located on the East Coast.A Philadelphia-area bank will provide this service for an annual fee of $25,000 plus 12 cents per transaction.The estimated reduction in collection and processing time is one day.The average customer payment in this region is $8,200.Treasury bills are currently yielding 5 percent per year.Assume a year has 365 days.Approximately how many customers each day,on average,are needed to make the system profitable for Cow Chips,Inc.?

Accepted Answer

A)  56
B)  68
C)  74
D)  83
E)  89F) A) and C)
G) A) and B)

Question 2

Your firm spends $48,000 a week to pay bills and maintains a lower cash balance limit of $50,000.The standard deviation of the disbursements is $8,100.The applicable weekly interest rate is 0.054 percent and the fixed cost of transferring funds is $65.What is your cash balance target based on the Miller-Orr model?

Accepted Answer

A)  $48,156
B)  $49,990
C)  $54,884
D)  $68,093
E)  $75,726F) A) and B)
G) B) and C)

Question 3

On an average day,Town Center Hardware receives $2,420 in checks from customers.These checks clear the bank in an average of 2.1 days.The applicable daily interest rate is 0.025 percent.What is the maximum amount this store should pay to completely eliminate its collection float? Assume each month has 30 days.

Accepted Answer

A)  $1,152.38
B)  $1,288.15
C)  $2,109.16
D)  $4,637.33
E)  $5,082.00F) B) and D)
G) A) and E)

Question 4

Which two of the following are the primary reasons why firms temporarily accumulate large cash surpluses?
I.cyclical activities
II.desire to invest funds
III.daily operations
IV.fixed asset purchases

Accepted Answer

A)  I and III only
B)  II and IV only
C)  I and II only
D)  III and IV only
E)  I and IV onlyF) All of the above
G) C) and D)

Question 5

Float management systems may provide only minimal benefits to a firm.Given that most firms have other projects with higher positive net present values,why should a firm's managers spend time implementing a float management system?

Accepted Answer

Students should explain that any project...

Question 6

Purple Feet Wine,Inc.receives an average of $6,000 in checks per day.The delay in clearing is typically 4 days.The current interest rate is 0.025 percent per day.Assume 30 days per month.What is the highest daily fee the company should be willing to pay to eliminate its float entirely?

Accepted Answer

A)  $1.50
B)  $3.00
C)  $3.75
D)  $6.00
E)  $6.50F) B) and D)
G) C) and D)

Question 7

Which one of the following collection times is correctly described?

Accepted Answer

A)  The processing delay starts when a firm mails out a billing statement and ends when the payment is received from a customer.
B)  Mailing time begins when a firm mails out a billing statement and ends when the payment is received.
C)  Collection time begins when a firm mails out a billing statement and ends when the cash payment for that billing is available to the firm.
D)  Availability delay begins when a firm deposits a customer's check into its bank account and ends when the cash from that payment is available to the firm.
E)  Processing delay begins when a firm mails out billing statements and ends when the firm deposits the payment for that statement into its bank account.F) A) and E)
G) C) and D)

Question 8

Each business day,on average,a company writes checks totaling $26,000 to pay its suppliers.The usual clearing time for the checks is 5 days.Meanwhile,the company is receiving payments from its customers each day,in the form of checks,totaling $40,000.The cash from the payments is available to the firm after 2 days.What is the amount of the firm's average net float?

Accepted Answer

A)  $30,00
B)  $50,000
C)  $80,000
D)  $110,000
E)  $130,000F) None of the above
G) C) and E)

Question 9

A repurchase agreement generally has a maximum life of:

Accepted Answer

A)  1 day.
B)  a few days.
C)  one month.
D)  one to three months.
E)  three to six months.F) A) and D)
G) C) and D)

Question 10

The Hobby Shop has a checking account with a ledger balance of $692.The firm has $1,063 in uncollected deposits and $930 in outstanding checks.What is the amount of the disbursement float on this account?

Accepted Answer

A)  $0
B)  $217
C)  $930
D)  $990
E)  $1,063F) B) and C)
G) A) and B)

Question 11

On an average day,Wilson & Wilson receives $7,800 in checks from customers.These checks clear the bank in an average of 1.7 days.The applicable daily interest rate is 0.022 percent.What is the highest daily fee this firm should pay to completely eliminate its collection float? Assume each month has 30 days.

Accepted Answer

A)  $1.72
B)  $2.92
C)  $17.20
D)  $24.30
E)  $29.17F) A) and E)
G) B) and E)

Question 12

Paper Submarine Manufacturing is investigating a lockbox system to reduce its collection time.It has determined the following:   Average number of payments per day 300 Average value of payment $3,200 Variable lockbox fees (per transaction)  $0.75 Daily interest rate on money market securities 0.02 percent \begin{array} { l l } 	ext { Average number of payments per day } & 300 \	ext { Average value of payment } & \$ 3,200 \	ext { Variable lockbox fees (per transaction)  } & \$ 0.75 \	ext { Daily interest rate on money market securities } & 0.02 	ext { percent }\end{array} Average number of payments per day  Average value of payment  Variable lockbox fees (per transaction)   Daily interest rate on money market securities ​300$3,200$0.750.02 percent ​  The total collection time will be reduced by 2 days if the lockbox system is adopted.What is the NPV of adopting the lockbox system?

Accepted Answer

A)  $600,000
B)  $675,000
C)  $695,000
D)  $745,000
E)  $795,000 F) D) and E)
G) C) and D)

Question 13

Penco Supply spends $325,000 a week to pay bills and maintains a lower cash balance limit of $75,000.The standard deviation of its disbursements is $18,900.The applicable interest rate is 5 percent and the fixed cost of transferring funds is $65.What is the firm's optimal initial cash balance based on the BAT model?

Accepted Answer

A)  $150,600
B)  $158,929
C)  $170,096
D)  $221,506
E)  $209,619F) All of the above
G) B) and C)

Question 14

The Burger Stop spends $52,000 a week to pay bills and maintains a lower cash balance limit of $60,000.The standard deviation of the disbursements is $7,500.The applicable weekly interest rate is 0.04 percent and the fixed cost of transferring funds is $50.What is your optimal average cash balance based on the Miller-Orr model?

Accepted Answer

A)  $79,116
B)  $83,208
C)  $110,315
D)  $237,348
E)  $249,624F) C) and D)
G) A) and E)

Question 15

The Food Wholesaler generally receives 4 checks a month.The check amounts and the collection delay for each check are shown below.Given this information,what is the amount of the average daily float? Assume every month has 30 days.

Accepted Answer

A)  $3,963.89
B)  $21,750.00
C)  $22,236.67
D)  $28,133.33
E)  $35,675.00F) C) and E)
G) A) and B)

Question 16

A money market preferred stock:

Accepted Answer

A)  has a floating dividend.
B)  is sold only under a repurchase agreement.
C)  is a special form of commercial paper.
D)  has more price volatility than an ordinary preferred.
E)  has its interest rate reset daily.F) A) and B)
G) B) and C)

Question 17

You are considering implementing a lockbox system for your firm.The system is expected to reduce the average collection time by 1.2 days.On an average day,your firm receives 320 checks with an average value of $99 each.The daily interest rate on Treasury bills is 0.014 percent.What is the anticipated amount of the daily savings if this system is implemented?

Accepted Answer

A)  $2.61
B)  $3.29
C)  $4.45
D)  $5.32
E)  $5.78F) A) and C)
G) A) and B)

Question 18

Travel Inn Express spends $109,000 a week to pay bills and maintains a lower cash balance limit of $125,000.The standard deviation of the disbursements is $14,400.The applicable weekly interest rate is 0.039 percent and the fixed cost of transferring funds is $58.What is the inn's cash balance target based on the Miller-Orr model?

Accepted Answer

A)  $28,492
B)  $31,359
C)  $153,492
D)  $156,359
E)  $225,417F) C) and D)
G) B) and E)

Question 19

The BAT model is used to:

Accepted Answer

A)  maximize the benefits of leverage.
B)  determine the optimal cash position of a firm.
C)  eliminate all daily cash surpluses.
D)  analyze the cash balance given fluctuating cash inflows and outflows.
E)  maximize the opportunity costs of holding cash.F) None of the above
G) A) and E)

Question 20

Adjustment costs is another name for which one of the following?

Accepted Answer

A)  borrowing costs
B)  shortage costs
C)  cash transfer costs
D)  cash wire costs
E)  excess cash costsF) None of the above
G) A) and E)

Exam 19: Cash and Liquidity Management

Which two of the following are the primary reasons why firms temporarily accumulate large cash surpluses? I.cyclical activities II.desire to invest funds III.daily operations IV.fixed asset purchases

Correct Answer
verified

The Hobby Shop has a checking account with a ledger balance of $692.The firm has $1,063 in uncollected deposits and $930 in outstanding checks.What is the amount of the disbursement float on this account?

Correct Answer
verified

Which one of the following collection times is correctly described?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Purple Feet Wine,Inc.receives an average of $6,000 in checks per day.The delay in clearing is typically 4 days.The current interest rate is 0.025 percent per day.Assume 30 days per month.What is the highest daily fee the company should be willing to pay to eliminate its float entirely?

Correct Answer
verified

The BAT model is used to:

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Adjustment costs is another name for which one of the following?

Correct Answer
verified

Float management systems may provide only minimal benefits to a firm.Given that most firms have other projects with higher positive net present values,why should a firm's managers spend time implementing a float management system?

Correct Answer
verified
Students should explain that any project...
View Answer

A money market preferred stock:

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The Food Wholesaler generally receives 4 checks a month.The check amounts and the collection delay for each check are shown below.Given this information,what is the amount of the average daily float? Assume every month has 30 days.

Correct Answer
verified

A repurchase agreement generally has a maximum life of:

Correct Answer
verified

Correct Answer
verified

Exam 19: Cash and Liquidity Management

Which two of the following are the primary reasons why firms temporarily accumulate large cash surpluses? I.cyclical activities II.desire to invest funds III.daily operations IV.fixed asset purchases

Correct AnswerverifiedShow Answer

The Hobby Shop has a checking account with a ledger balance of $692.The firm has $1,063 in uncollected deposits and $930 in outstanding checks.What is the amount of the disbursement float on this account?

Correct AnswerverifiedShow Answer

Which one of the following collection times is correctly described?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Purple Feet Wine,Inc.receives an average of $6,000 in checks per day.The delay in clearing is typically 4 days.The current interest rate is 0.025 percent per day.Assume 30 days per month.What is the highest daily fee the company should be willing to pay to eliminate its float entirely?

Correct AnswerverifiedShow Answer

The BAT model is used to:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Adjustment costs is another name for which one of the following?

Correct AnswerverifiedShow Answer

Float management systems may provide only minimal benefits to a firm.Given that most firms have other projects with higher positive net present values,why should a firm's managers spend time implementing a float management system?

Correct AnswerverifiedStudents should explain that any project...View AnswerShow Answer

A money market preferred stock:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Food Wholesaler generally receives 4 checks a month.The check amounts and the collection delay for each check are shown below.Given this information,what is the amount of the average daily float? Assume every month has 30 days.

Correct AnswerverifiedShow Answer

A repurchase agreement generally has a maximum life of:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Students should explain that any project...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified