Question 1

Roger's Distributors receives an average of 310 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)   $22.42
E)   $32.17F) B) and D)
G) B) and C)

Question 2

Your firm generally receives 4 checks a month.The check amounts and the collection delay for each check is shown below.Given this information what is the amount of the average daily float? Assume a 30 day month.

Accepted Answer

A)   $1,120
B)   $2,333
C)   $2,640
D)   $2,900
E)   $3,416F) A) and B)
G) A) and C)

Question 3

The Snow Hut has analyzed the carrying and shortage costs associated with its cash holdings and determined that the firm should ideally maintain a cash balance of $3,600.This $3,600 represents which one of the following to the firm?

Accepted Answer

A)   target cash balance
B)   concentration balance
C)   available balance
D)   selected cash amount
E)   compensating balanceF) None of the above
G) D) and E)

Question 4

Lockboxes:

Accepted Answer

A)   should be geographically located close to a firm's primary customers.
B)   should be located in remote locations to increase the net disbursement float.
C)   offer no additional benefit to a firm now that the Check Clearing Act for the 21st Century has been enacted.
D)   tend to be negative net present value projects for firms with a large number of sizeable transactions.
E)   tend to also be used as concentration accounts.F) C) and D)
G) A) and D)

Question 5

Which one of the following statements is correct concerning a cash management system that employs both lockboxes and a concentration bank account?

Accepted Answer

A)   All customer payments must be submitted to a lockbox.
B)   The party which collects the checks from the lockbox is responsible for recording the payment on the customer's account.
C)   Payments received in a lockbox are transferred immediately to the concentration account.
D)   The firm's cash manager determines how the funds in the concentration account are disbursed.
E)   The concentration account must be zeroed out on a daily basis.F) B) and C)
G) A) and E)

Question 6

The Miller-Orr model:

Accepted Answer

A)   recommends selling securities in an amount equal to (U* - 
C)  when the cash balance reaches L.
B)   requires that marketable securities be sold whenever the cash balance falls below the target level.
C)   bases the optimal level of cash solely on the opportunity costs of holding cash.
D)   supports the argument that the target cash balance declines as order costs increase.
E)   advocates investing an amount described as (U* - 
C)  in marketable securities when the cash balance reaches U*.F) B) and C)
G) A) and C)

Question 7

The main purpose of a cash concentration account is to:

Accepted Answer

A)   decrease collection float.
B)   decrease disbursement float.
C)   consolidate funds.
D)   replace a lockbox system.
E)   cover compensating balance requirements.F) B) and E)
G) B) and D)

Question 8

On an average day,your firm receives $11,800 in checks from customers.These checks clear the bank in an average of 2.8 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)   $3.72
B)   $4.96
C)   $17.78
D)   $34.18
E)   $37.20F) All of the above
G) A) and B)

Question 9

Your neighbor goes to the post office once a month and picks up two checks,one for $18,000 and one for $4,000.The larger check takes 4 days to clear after it is deposited;the smaller one takes 6 days.Assume 30 days per month.What is the weighted average delay?

Accepted Answer

A)   4.21 days
B)   4.36 days
C)   4.78 days
D)   5.00 days
E)   6.00 daysF) D) and E)
G) All of the above

Question 10

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) B) and C)

Question 11

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

Question 12

A zero-balance account:

Accepted Answer

A)   is used to cover the compensating balance requirement of a line of credit agreement.
B)   is only used to deposit funds received at local lockboxes.
C)   is funded on an as-needed basis only.
D)   is limited to handling payroll disbursements.
E)   requires a compensating balance.F) B) and D)
G) A) and D)

Question 13

Hot Tub Builders sells to three retail outlets.Each retailer pays once a month in the amounts shown below.The collection delay associated with each payment is also given below.What is the amount of the average daily receipts if you assume each month has 30 days?

Accepted Answer

A)   $2,389.70
B)   $8,513.33
C)   $14,608.13
D)   $23,896.97
E)   $81,900.00F) B) and E)
G) None of the above

Question 14

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

Question 15

A mail-order firm processes 5,000 checks per month.Of these,55 percent are for $55 and 45 percent are for $65.The $55 checks are delayed 2 days on average;the $65 checks are delayed 5 days on average.Assume each month has 30 days.The interest rate is 6 percent per year.How much should the firm be willing to pay to reduce the weighted average float by 1.4 days?

Accepted Answer

A)   $4,165
B)   $13,883
C)   $41,650
D)   $138,883
E)   $416,500F) A) and B)
G) A) and D)

Question 16

On an average day,Plastics Enterprises writes 42 checks with an average amount of $587.These checks clear the bank in an average of 2 days.What is the average amount of the disbursement float?

Accepted Answer

A)   $1,174
B)   $5,805
C)   $24,654
D)   $49,308
E)   $73,962F) A) and D)
G) All of the above

Question 17

Atlas Builders deals strictly with five 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 every month has 30 days.

Accepted Answer

A)   $1,143.33
B)   $2,546.67
C)   $2,983.33
D)   $6,166.67
E)   $6,860.00F) A) and D)
G) None of the above

Question 18

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 D)
G) A) and B)

Question 19

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) C) and E)
G) A) and B)

Question 20

You are considering implementing a lockbox system for your firm.The system is expected to reduce the average collection time by 2.8 days.On an average day,your firm receives 2,419 checks with an average value of $1,287 each.The daily interest rate on Treasury bills is 0.016 percent.The bank charge per check is $0.30.What is the net present value of this lockbox arrangement?

Accepted Answer

A)   -$4,535,625
B)   -$2,611,575
C)   $187,419
D)   $4,181,483
E)   $13,252,733F) B) and C)
G) A) and B)

Exam 19: Cash and Liquidity Management

Float is defined as the:

Correct Answer
verified

Your firm generally receives 4 checks a month.The check amounts and the collection delay for each check is shown below.Given this information what is the amount of the average daily float? Assume a 30 day month.

Correct Answer
verified

Which one of the following collection times is correctly described?

Correct Answer
verified

Atlas Builders deals strictly with five 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 every month has 30 days.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The Miller-Orr model:

Correct Answer
verified

Your neighbor goes to the post office once a month and picks up two checks,one for $18,000 and one for $4,000.The larger check takes 4 days to clear after it is deposited;the smaller one takes 6 days.Assume 30 days per month.What is the weighted average delay?

Correct Answer
verified

Lockboxes:

Correct Answer
verified

The main purpose of a cash concentration account is to:

Correct Answer
verified

Hot Tub Builders sells to three retail outlets.Each retailer pays once a month in the amounts shown below.The collection delay associated with each payment is also given below.What is the amount of the average daily receipts if you assume each month has 30 days?

Correct Answer
verified

Correct Answer
verified

On an average day,Plastics Enterprises writes 42 checks with an average amount of $587.These checks clear the bank in an average of 2 days.What is the average amount of the disbursement float?

Correct Answer
verified

Correct Answer
verified

A zero-balance account:

Correct Answer
verified

Which one of the following statements is correct concerning a cash management system that employs both lockboxes and a concentration bank account?

Correct Answer
verified

Correct Answer
verified

The Snow Hut has analyzed the carrying and shortage costs associated with its cash holdings and determined that the firm should ideally maintain a cash balance of $3,600.This $3,600 represents which one of the following to the firm?

Correct Answer
verified

Correct Answer
verified

A repurchase agreement generally has a maximum life of:

Correct Answer
verified

Exam 19: Cash and Liquidity Management

Float is defined as the:

Correct AnswerverifiedShow Answer

Your firm generally receives 4 checks a month.The check amounts and the collection delay for each check is shown below.Given this information what is the amount of the average daily float? Assume a 30 day month.

Correct AnswerverifiedShow Answer

Which one of the following collection times is correctly described?

Correct AnswerverifiedShow Answer

Atlas Builders deals strictly with five 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 every month has 30 days.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Miller-Orr model:

Correct AnswerverifiedShow Answer

Your neighbor goes to the post office once a month and picks up two checks,one for $18,000 and one for $4,000.The larger check takes 4 days to clear after it is deposited;the smaller one takes 6 days.Assume 30 days per month.What is the weighted average delay?

Correct AnswerverifiedShow Answer

Lockboxes:

Correct AnswerverifiedShow Answer

The main purpose of a cash concentration account is to:

Correct AnswerverifiedShow Answer

Hot Tub Builders sells to three retail outlets.Each retailer pays once a month in the amounts shown below.The collection delay associated with each payment is also given below.What is the amount of the average daily receipts if you assume each month has 30 days?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

On an average day,Plastics Enterprises writes 42 checks with an average amount of $587.These checks clear the bank in an average of 2 days.What is the average amount of the disbursement float?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A zero-balance account:

Correct AnswerverifiedShow Answer

Which one of the following statements is correct concerning a cash management system that employs both lockboxes and a concentration bank account?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Snow Hut has analyzed the carrying and shortage costs associated with its cash holdings and determined that the firm should ideally maintain a cash balance of $3,600.This $3,600 represents which one of the following to the firm?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A repurchase agreement generally has a maximum life of:

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified