Question 1

Yesterday, the president of RB Enterprises received a phone call from DLK, a competitor. DLK is a sole proprietorship. An unexpected family situation has caused the owner to suddenly want to retire and relocate closer to his family. Thus, the assets of DLK are being offered to RB Enterprises at a bargain basement price. While RB Enterprises had not anticipated purchasing these assets, it was decided that the opportunity was too good to pass up. This illustrates which of the following needs to hold cash?

Accepted Answer

A)  precautionary
B)  transaction
C)  speculative
D)  compensation
E)  floatF) A) and D)
G) C) and E)

Question 2

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) A) and B)
G) C) and D)

Question 3

A firm has $16,718 in outstanding checks that have not cleared the bank. The firm also has $13,450 in deposits that have been recorded by the firm but not by the bank. The current available balance is $11,407. What is the status of the net float?

Accepted Answer

A)  net collection float of $8,138
B)  net collection float of $2,043
C)  net collection float of $13,450
D)  net disbursement float of $3,268
E)  net disbursement float of $5,311F) A) and E)
G) A) and D)

Question 4

The Metallurgical Specialty Co. deals strictly with four customers. The average amount each customer pays per month along with the collection delay associated with each payment is shown below. Given this information, what is the weighted average delay? Assume each month has 30 days.

Accepted Answer

A)  1.98 days
B)  2.04 days
C)  2.09 days
D)  2.16 days
E)  2.23 daysF) B) and E)
G) A) and B)

Question 5

Your company has an available balance of $7,911. A deposit of $2,480 that was made this morning is not yet included in the bank's balance. There are also 4 checks outstanding with a value of $325 each. What is the net float?

Accepted Answer

A)  net collection float of $1,180
B)  net collection float of $2,480
C)  net float of $6,731
D)  net disbursement float of $1,300
E)  net disbursement float of $2,480F) A) and B)
G) None of the above

Question 6

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) All of the above
G) A) and B)

Question 7

The Blue Moon Hotel and Spa spends $359,000 a week to pay bills and maintains a lower cash balance limit of $250,000. The standard deviation of the disbursements is $46,800. The applicable weekly interest rate is 0.045 percent and the fixed cost of transferring funds is $60. What is the hotel's optimal upper cash limit based on the Miller-Orr model?

Accepted Answer

A)  $430,836
B)  $447,905
C)  $528,700
D)  $739,459
E)  $861,672F) B) and C)
G) A) and D)

Question 8

Explain how a lockbox system operates and why a firm might consider implementing such a system.

Accepted Answer

A lockbox system entails opening post of...

Question 9

Why do firms need liquidity?
I. to meet compensating balance requirements
II. to take advantage of an opportunity that suddenly arises
III. to conduct daily business activities
IV. to be prepared for a financial emergency

Accepted Answer

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

Question 10

High Brow Express deals strictly with two customers. The average amount each customer pays per month along with the collection delay associated with each payment is shown below. Given this information, what is the weighted average delay? Assume that every month has 30 days.

Accepted Answer

A)  1.79 days
B)  1.84 days
C)  2.00 days
D)  2.07 days
E)  2.16 daysF) A) and B)
G) B) and C)

Question 11

Float is defined as the:

Accepted Answer

A)  amount of cash a firm can immediately withdraw from its bank account.
B)  difference between book cash and bank cash.
C)  change in a firm's cash balance from one accounting period to the next.
D)  amount of cash a firm has on hand.
E)  cash balance according to a firm's records.F) C) and D)
G) A) and D)

Question 12

Disbursements float:

Accepted Answer

A)  occurs when a deposit is recorded but the funds are unavailable.
B)  causes the book balance to exceed the bank balance.
C)  has tended to increase since the enactment of the Check Clearing Act for the 21st Century.
D)  is a recommended source of funds for short-term investments.
E)  is eliminated when payments are made electronically.F) B) and D)
G) None of the above

Question 13

Roger's Distributors receives an average of 216 checks a day. The average amount per check is $629. The firm is considering a lockbox system which it anticipates will reduce the average collection time by 1.5 days. The daily interest rate on Treasury bills is 0.011 percent. What is the amount of the expected daily savings of the lockbox system?

Accepted Answer

A)  $2.04
B)  $6.92
C)  $14.95
D)  $18.10
E)  $22.42F) B) and E)
G) B) and D)

Question 14

National Exporters deals strictly with two customers. The average amount each customer pays per month along with the collection delay associated with each payment is shown below. Given this information, what is the amount of the average daily receipts? Assume that every month has 30 days.

Accepted Answer

A)  $2,653.33
B)  $3,006.33
C)  $5,306.67
D)  $7,811.67
E)  $8,600.00F) None of the above
G) C) and D)

Question 15

Which of the following costs related to holding cash are minimized when the level of cash a firm holds is optimized?

Accepted Answer

A)  opportunity costs
B)  trading costs
C)  total costs
D)  both trading and opportunity costs
E)  trading costs, opportunity costs, and total costsF) A) and B)
G) A) and C)

Question 16

On an average day, your firm receives $11,800 in checks from customers. These checks clear the bank in an average of 2.1 days. The applicable daily interest rate is 0.015 percent. What is the highest daily fee your firm should pay to completely eliminate the collection float? Assume each month has 30 days.

Accepted Answer

A)  $3.42
B)  $3.72
C)  $17.78
D)  $34.18
E)  $37.20F) B) and E)
G) A) and C)

Question 17

Currently, your firm requires 2 days to process the checks which customers mail in to pay for their credit purchases. The average mail time associated with these payments is 2.3 days and the check clearing time is 2.1 days. If your firm adopts a lockbox system, the mail time will be cut in half. In addition, if employees are reassigned, checks could be processed the same day they are received. How long will your collection time be if both the lockbox system and the job reassignments are implemented?

Accepted Answer

A)  3.85 days
B)  4.10 days
C)  4.25 days
D)  4.40 days
E)  4.55 daysF) A) and E)
G) A) and B)

Question 18

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

Question 19

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) B) and D)
G) A) and B)

Question 20

Mountaintop Inns, a Kentucky company, has determined that a majority of its customers are located in the Pennsylvania area. It therefore is considering using a lockbox system offered by a bank located in Pittsburgh, Pennsylvania. The bank has estimated that use of the system will reduce collection time by one day. In addition to the variable charge shown below, there is also a fixed charge of $4,320 per year for the lockbox system. Assume a year has 365 days. What is the NPV of the lockbox system given the following information?

Accepted Answer

A)  -$156,727
B)  -$131,301
C)  -$74,208
D)  $11,507
E)  $26,433F) B) and D)
G) A) and C)

Exam 19: Cash and Liquidity Management

Which of the following costs related to holding cash are minimized when the level of cash a firm holds is optimized?

Correct Answer
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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
verified

Correct Answer
verified

Explain how a lockbox system operates and why a firm might consider implementing such a system.

Correct Answer
verified
A lockbox system entails opening post of...
View Answer

The Metallurgical Specialty Co. deals strictly with four customers. The average amount each customer pays per month along with the collection delay associated with each payment is shown below. Given this information, what is the weighted average delay? Assume each month has 30 days.

Correct Answer
verified

Cash management primarily involves:

Correct Answer
verified

Your company has an available balance of $7,911. A deposit of $2,480 that was made this morning is not yet included in the bank's balance. There are also 4 checks outstanding with a value of $325 each. What is the net float?

Correct Answer
verified

Float is defined as the:

Correct Answer
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Disbursements float:

Correct Answer
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Correct Answer
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Correct Answer
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National Exporters deals strictly with two customers. The average amount each customer pays per month along with the collection delay associated with each payment is shown below. Given this information, what is the amount of the average daily receipts? Assume that every month has 30 days.

Correct Answer
verified

Correct Answer
verified

A money market preferred stock:

Correct Answer
verified

Why do firms need liquidity? I. to meet compensating balance requirements II. to take advantage of an opportunity that suddenly arises III. to conduct daily business activities IV. to be prepared for a financial emergency

Correct Answer
verified

High Brow Express deals strictly with two customers. The average amount each customer pays per month along with the collection delay associated with each payment is shown below. Given this information, what is the weighted average delay? Assume that every month has 30 days.

Correct Answer
verified

Correct Answer
verified

A firm has $16,718 in outstanding checks that have not cleared the bank. The firm also has $13,450 in deposits that have been recorded by the firm but not by the bank. The current available balance is $11,407. What is the status of the net float?

Correct Answer
verified

Exam 19: Cash and Liquidity Management

Which of the following costs related to holding cash are minimized when the level of cash a firm holds is optimized?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Explain how a lockbox system operates and why a firm might consider implementing such a system.

Correct AnswerverifiedA lockbox system entails opening post of...View AnswerShow Answer

The Metallurgical Specialty Co. deals strictly with four customers. The average amount each customer pays per month along with the collection delay associated with each payment is shown below. Given this information, what is the weighted average delay? Assume each month has 30 days.

Correct AnswerverifiedShow Answer

Cash management primarily involves:

Correct AnswerverifiedShow Answer

Your company has an available balance of $7,911. A deposit of $2,480 that was made this morning is not yet included in the bank's balance. There are also 4 checks outstanding with a value of $325 each. What is the net float?

Correct AnswerverifiedShow Answer

Float is defined as the:

Correct AnswerverifiedShow Answer

Disbursements float:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

National Exporters deals strictly with two customers. The average amount each customer pays per month along with the collection delay associated with each payment is shown below. Given this information, what is the amount of the average daily receipts? Assume that every month has 30 days.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A money market preferred stock:

Correct AnswerverifiedShow Answer

Why do firms need liquidity? I. to meet compensating balance requirements II. to take advantage of an opportunity that suddenly arises III. to conduct daily business activities IV. to be prepared for a financial emergency

Correct AnswerverifiedShow Answer

High Brow Express deals strictly with two customers. The average amount each customer pays per month along with the collection delay associated with each payment is shown below. Given this information, what is the weighted average delay? Assume that every month has 30 days.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A firm has $16,718 in outstanding checks that have not cleared the bank. The firm also has $13,450 in deposits that have been recorded by the firm but not by the bank. The current available balance is $11,407. What is the status of the net float?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A lockbox system entails opening post of...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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