Question 1

Your firm has an average receipt size of $60.A bank has approached you concerning a lockbox service that will decrease your total collection time by 1 day.You typically receive 25,000 checks per day.The daily interest rate is 0.016 percent.What is the NPV of the lockbox project if the bank charges a fee of $210 per day?

Accepted Answer

A)   $187,500
B)   $367,500
C)   $903,350
D)   $1,412,500
E)   $1,680,000F) B) and D)
G) C) and D) A

Question 2

It takes your firm 4.5 days to prepare and mail out all the monthly statements to your customers.On average,the mail time between your firm and your customers is 2.6 days.Customer checks take an average of 1.8 days to clear the bank.You have determined that your total average collection time is 6.1 days.How long,on average,does it take your firm to process the payments from customers?

Accepted Answer

A)   1.7 days
B)   2.6 days
C)   4.4 days
D)   4.8 days
E)   6.2 daysF) A) and D)
G) A) and C) A

Question 3

A lockbox system:

Accepted Answer

A)   entails the use of a bank which is centrally located to collect payments on a nationwide basis.
B)   is designed to deposit a customer's check into the firm's bank account prior to recording the receipt of that check to a customer's account.
C)   is used to reduce the disbursement float of a firm.
D)   is efficient regardless of the locations selected for lockbox destinations.
E)   automatically records payments to a customer's account when the customer's check is received at the lockbox location.F) C) and E)
G) D) and E)

Question 4

Your average customer is located 4.3 mailing days away from your firm.You have determined that,on average,it is taking your staff 1.5 days to process payments received from customers.In addition,it takes an average of 2.8 days for your funds to be available for use once you have made your bank deposit.What is your firm's collection time?

Accepted Answer

A)   2.2 days
B)   3.7 days
C)   4.3 days
D)   5.8 days
E)   8.6 daysF) C) and E)
G) A) and C)

Question 5

Donaldson,Inc.spends $94,000 a week to pay bills and maintains a lower cash balance limit of $25,000.The standard deviation of the disbursements is $13,000.The applicable weekly interest rate is 0.045 percent and the fixed cost of transferring funds is $52.What is your optimal average cash balance based on the Miller-Orr model?

Accepted Answer

A)   $48,334
B)   $57,623
C)   $82,623
D)   $236,334
E)   $247,334F) B) and D)
G) D) and E)

Question 6

Check kiting is:

Accepted Answer

A)   used by most firms as an ethical means of handling its cash reserves.
B)   the process of withdrawing all funds from a bank account as soon as the funds are available.
C)   the central core of a good cash management system.
D)   using uncollected cash to invest in short-term,liquid assets.
E)   increasingly popular due to recent banking law changes.F) A) and E)
G) B) and D)

Question 7

Which of the following statements related to the BAT model is correct?
I.The BAT model is used to determine the target cash balance for a firm.
II.The BAT model is rarely used in business due to its complex nature.
III.The BAT model is a model that helps eliminate a firm's collection float.
IV.One disadvantage of the BAT model is the fact that it assumes all cash outflows are known with certainty.

Accepted Answer

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

Question 8

When Chris balanced her business checkbook,she had an adjusted bank balance of $11,418.She had 2 outstanding deposits worth $879 each and 11 checks outstanding with a total value of $3,648.What is the amount of the collection float on this account?

Accepted Answer

A)   -$1,890
B)   $1,758
C)   $3,648
D)   $5,406
E)   $6,012F) B) and D)
G) A) and E)

Question 9

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 10

Hand Tools,Inc.receives an average of 611 checks a day.The average amount per check is $425.The firm is considering a lockbox system which it anticipates will reduce the average collection time by 1 day.The bank charges $0.275 a check for this service.The daily interest rate on Treasury bills is 0.013 percent.What is the average daily cost of the lockbox system?

Accepted Answer

A)   $31.16
B)   $54.19
C)   $168.03
D)   $180.11
E)   $199.19F) C) and D)
G) A) and B)

Question 11

Cash management primarily involves:

Accepted Answer

A)   optimizing a firm's collections and disbursements of cash.
B)   maximizing the income a firm earns on its cash reserves.
C)   reconciling a firm's book balance with its bank balance.
D)   determining the optimal level of liquidity a firm should maintain.
E)   determining the best method of raising capital.F) D) and E)
G) C) and E)

Question 12

Hoyes Lumber generally receives 3 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 each month has 30 days.

Accepted Answer

A)   $1,386.67
B)   $1,407.19
C)   $4,750.00
D)   $6,833.33
E)   $6,933.33F) B) and C)
G) A) and E) A

Question 13

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) C) and D)
G) A) and E)

Question 14

The Eliot Co.needs $185,000 a week to pay bills.The standard deviation of the weekly disbursements is $17,600.The firm has established a lower cash balance limit of $75,000.The applicable interest rate is 5.5 percent and the fixed cost of transferring funds is $47.Based on the BAT model,what is the optimal initial cash balance?

Accepted Answer

A)   $90,668
B)   $97,515
C)   $104,141
D)   $128,224
E)   $136,509F) A) and C)
G) A) and E)

Question 15

-The Cow Pie Spreader Co.spends $214,000 a week to pay bills and maintains a lower cash balance limit of $150,000.The standard deviation of the disbursements is $16,000.The applicable weekly interest rate is 0.025 percent and the fixed cost of transferring funds is $49.What is the firm's cash balance target based on the Miller-Orr model?

Accepted Answer

A)   $183,511
B)   $208,511
C)   $251,006
D)   $254,545
E)   $258,878F) B) and D)
G) All of the above

Question 16

Which of the following variables are included in the BAT model?
I.upper cash limit
II.interest rate on marketable securities
III.opportunity cost of holding cash
IV.fixed cost of each securities trade

Accepted Answer

A)   II only
B)   I and III only
C)   II and IV only
D)   II,III,and IV only
E)   I,III,and IV onlyF) A) and B)
G) A) and C)

Question 17

Paper Submarine Manufacturing is investigating a lockbox system to reduce its collection time.It has determined the following: 
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)   $795,000F) B) and E)
G) B) and D)

Question 18

Never Again Enterprises has an agreement with The Worth Bank whereby the bank handles $3.12 million in collections a day and requires a $1,000,000 compensating balance.Never Again is contemplating canceling the agreement and dividing its eastern region so that two other banks will handle its business.Banks A and B will each handle $1.56 million of collections a day,and each requires a compensating balance of $1,550,000.Never Again's financial management expects that collections will be accelerated by one day if the eastern region is divided.The T-bill rate is 4 percent annually.What is the amount of the annual net savings if this plan is adopted?

Accepted Answer

A)   $10,200
B)   $40,800
C)   $76,500
D)   $102,000
E)   $125,000F) A) and D)
G) D) and E)

Question 19

Money market securities have which of the following characteristics?
I.long maturities
II.low default risk
III.high degree of liquidity
IV.low rates of return

Accepted Answer

A)   I and III only
B)   II and III only
C)   I and IV only
D)   II,III,and IV only
E)   I,II,III,and IVF) C) and D)
G) None of the above

Question 20

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) B) and E)
G) B) and D)

Exam 19: Cash and Liquidity Management

Correct Answer
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A

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A lockbox system:

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Check kiting is:

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When Chris balanced her business checkbook,she had an adjusted bank balance of $11,418.She had 2 outstanding deposits worth $879 each and 11 checks outstanding with a total value of $3,648.What is the amount of the collection float on this account?

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

Correct Answer
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Cash management primarily involves:

Correct Answer
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Hoyes Lumber generally receives 3 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 each month has 30 days.

Correct Answer
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A

Correct Answer
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Correct Answer
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Correct Answer
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Which of the following variables are included in the BAT model? I.upper cash limit II.interest rate on marketable securities III.opportunity cost of holding cash IV.fixed cost of each securities trade

Correct Answer
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Paper Submarine Manufacturing is investigating a lockbox system to reduce its collection time.It has determined the following: 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?

Correct Answer
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Correct Answer
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Money market securities have which of the following characteristics? I.long maturities II.low default risk III.high degree of liquidity IV.low rates of return

Correct Answer
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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

Exam 19: Cash and Liquidity Management

Correct AnswerverifiedA

Correct AnswerverifiedA

A lockbox system:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Check kiting is:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When Chris balanced her business checkbook,she had an adjusted bank balance of $11,418.She had 2 outstanding deposits worth $879 each and 11 checks outstanding with a total value of $3,648.What is the amount of the collection float on this account?

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

Correct AnswerverifiedShow Answer

Cash management primarily involves:

Correct AnswerverifiedShow Answer

Hoyes Lumber generally receives 3 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 each month has 30 days.

Correct AnswerverifiedA

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following variables are included in the BAT model? I.upper cash limit II.interest rate on marketable securities III.opportunity cost of holding cash IV.fixed cost of each securities trade

Correct AnswerverifiedShow Answer

Paper Submarine Manufacturing is investigating a lockbox system to reduce its collection time.It has determined the following: 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?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Money market securities have which of the following characteristics? I.long maturities II.low default risk III.high degree of liquidity IV.low rates of return

Correct AnswerverifiedShow Answer

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

Correct Answer
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A

Correct Answer
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A

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

Correct Answer
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Correct Answer
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Correct Answer
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A

Correct Answer
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