FIN3403 Chapter 19
Phil's Carvings receives an average of 39 checks a day. The average amount per check is $1,560. The firm is considering a lockbox system which it anticipates will reduce the average collection time by 2.2 days. The bank charges $.35 a check for this service. The daily interest rate on Treasury bills is .008 percent. What is the average daily cost of the lockbox system? $11.16 $4.87 $8.11 - WRONG $19.19 $13.65
$13.65
Penco Supply spends $187,000 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 3.45 percent and the fixed cost of transferring funds is $32. What is the firm's optimal initial cash balance based on the BAT model? $60,753.09 - WRONG $121,506.18 $67,154.16 $158,929.19 $134,308.32
$134,308.32
Penco Supply spends $187,000 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 3.45 percent and the fixed cost of transferring funds is $32. What is the firm's optimal initial cash balance based on the BAT model? $67,154.16 -WRONG Optimal initial cash balance = [(2 ×$187,000 ×52 ×$32) / .0345].5
$134,308.32
In a typical month, the Jeremy Corporation receives 70 checks totaling $85,000. These are delayed 7 days on average. What is the average daily float? Assume 30 days per month. $20,230 $20,825 $18,842 $19,833 $2,833
$19,833
On an average day, BJ Footwear receives $13,620 in checks from customers. These checks clear the bank in an average of 1.8 days. The applicable daily interest rate is .012 percent. What is the highest daily fee your firm should pay to completely eliminate the collection float? Assume each month has 30 days. $3.29 $2.94 $3.18 $3.72 $1.78
$2.94
Hoyes Lumber generally receives three checks a month in the amounts of $1,200, $1,650, and $2,200. The $2,200 check has a two-day collection delay while the others have a one-day delay. Given this information, what is the amount of the average daily float? Assume each month has 30 days. $140.79 $109.18 $147.50 $241.67 $168.33
$241.67
Parkway Express needs $318,000 a week to pay bills. The standard deviation of the weekly disbursements is $31,000. The applicable interest rate is 4.5 percent and the fixed cost of transferring funds is $65. Based on the BAT model, what is the opportunity cost of holding cash? $3,118.72 $4,917.71 $10,283.33 - WRONG $5,206.67 $11,457.32
$4,917.71
Rosie O'Grady's spends $115,000 a week to pay bills and maintains a lower cash balance limit of $95,000. The standard deviation of the disbursements is $14,600. The applicable interest rate is 4.8 percent and the fixed cost of transferring funds is $50. What is this firm's total cost of holding cash based on the BAT model? $4,911.12 $5,357.62 $2,862.22 $3,034.18 $1,431.30
$5,357.62
Donaldson, Inc. spends $116,000 a week to pay bills and maintains a lower cash balance limit of $35,000. The standard deviation of the disbursements is $9,000. The applicable weekly interest rate is 0.05 percent and the fixed cost of transferring funds is $12. What is your optimal average cash balance based on the Miller-Orr model? 42,623.33 -WRONG
$50,119.05
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 .04 percent and the fixed cost of transferring funds is $50. What is your optimal average cash balance based on the Miller-Orr model? $79,624.54 $107,348.80 $110,311.45 $79,116.67 $83,207.94
$83,207.94
Lake Side spends $39,000 a week to pay bills and maintains a lower cash balance limit of $45,000. The standard deviation of disbursements is $12,100. The applicable interest rate is 3.15 percent and the fixed cost of transferring funds is $27. What is the opportunity cost of holding cash based on the BAT model? $791.13 $928.66 $804.42 $1,003.15 $728.82
$928.66
Each business day, on average, a company writes checks totaling $34,210 to pay its suppliers. The usual clearing time for the checks is 4.6 days. Meanwhile, the company is receiving payments from its customers each day, in the form of checks, totaling $38,515. The cash from the payments is available to the firm after 1.5 days. What is the amount of the firm's average net float? $13,345.50 $157,366.00 $57,772.50 $99,593.50 $142,318.00
$99,593.50
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. The firm receives an average of 620 payments per day with an average value of $2,300 each. In addition to the variable charge shown below, there is also a fixed charge of $2,400 per year for the lockbox system. The bank will change a lockbox fee of $.30 per transaction while the interest rate on money market securities is 4.2 percent. Assume a year has 365 days. What is the NPV of the lockbox system? $174,208.54 - WRONG -$281,190.68 $269,409.14 $311,507.78 -$156,727.07 Next
-$281,190.68
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? 6.2 days 4.4 days 4.8 days - WRONG 1.7 days 2.6 days
1.7 days
The Metallurgical Specialty Co. deals strictly with three customers who pay monthly amounts of $313,000, $427,000, and $146,000. The $146,000 check has a three day collection delay while the other two have a delay of 1.5 days. What is the weighted average delay assuming each month has 30 days? 1.75 days 1.78 days 2.09 days 1.98 days 2.16 days
1.75 days
Purple Feet Wine, Inc., receives an average of $20,500 in checks per day. The delay in clearing is typically four days. The current interest rate is .018 percent per day.What is the highest daily fee the company should be willing to pay to eliminate its float entirely? Round your answer to 2 decimal places, e.g., 32.16.
14.76
Cross Country Trucking provides transportation services exclusively for four customers. Customers A and B pay $64,000 and $96,500, respectively, with a two-day collection delay. Customers C and D pay $88,200 and $47,900, respectively, with a three-day collection delay. Given this information, what is the weighted average delay? Assume each month has 30 days. 2.78 days 2.11 days 2.27 days 2.50 days 2.46 days
2.46 days
Your neighbor goes to the post office once a month and picks up two checks, one for $14,600 and one for $5,600. The larger check takes four days to clear after it is deposited; the smaller one takes three days. Assume 30 days in a month. What is the weighted average delay? Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
3.72 DAYS
Your average customer is located 2.2 mailing days away from your firm. You have determined that, on average, it is taking your staff 1.1 days to process payments received from customers. In addition, it takes an average of .75 days for your funds to be available for use once you have made your bank deposit. What is your firm's collection time? 4.05 days 1.85 days 1.1 days 2.85 days .75 days
4.05 days
Currently, your firm requires 2 days to process the checks received in the mail from customers. The average mail time is 4.4 days and the check clearing time is 1.4 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? 2.9 days 3.6 days 4.6 days 3.9 days 4.1 days - WRONG
4.6 days - possibly correct - need to double check
Donaldson, Inc. spends $116,000 a week to pay bills and maintains a lower cash balance limit of $35,000. The standard deviation of the disbursements is $9,000. The applicable weekly interest rate is 0.05 percent and the fixed cost of transferring funds is $12. What is your optimal average cash balance based on the Miller-Orr model? $46,334.09 $42,623.33 $47,108.16 $50,119.05 $48,333.33 - WRONG
42,623.33
Which one of these is a characteristic of money market preferred stock? More price volatility than ordinary preferred. A floating dividend. Limited life. Interest rate reset daily. Totally tax-exempt interest.
A floating dividend.
Municipal bonds: Are also referred to as commercial paper.-WRONG Produce income that is subject to federal income taxation. Generally pay a higher coupon than corporate bonds. Are less liquid than U.S. treasury bills. Are issued by the federal government.
Are less liquid than U.S. treasury bills.
In a typical month, the Jeremy Corporation receives 90 checks totaling $65,000. These are delayed 5 days on average. What is the average daily float? Assume 30 days per month. A.$10,292 B.$10,833 C. $11,375 D.$2,167 E.$11,050
B.$10,833 * (5) * (65,000) / 30
Float is defined as the: A. Amount of cash a firm can immediately withdraw from its bank account. B.Cash balance according to a firm's records. C.Difference between book cash and bank cash. D.Amount of cash a firm has on hand. E.Change in a firm's cash balance from one accounting period to the next.
C.Difference between book cash and bank cash.
The BAT model is used to: Eliminate all daily cash surpluses. Maximize the opportunity costs of holding cash. Maximize the benefits of leverage. Determine the optimal cash position of a firm. Analyze the cash balance given fluctuating cash inflows and outflows. Next
Determine the optimal cash position of a firm.
The BAT model is used to: Maximize the opportunity costs of holding cash. Analyze the cash balance given fluctuating cash inflows and outflows. Determine the optimal cash position of a firm. Eliminate all daily cash surpluses. Maximize the benefits of leverage.
Determine the optimal cash position of a firm.
Which one of the following enables checks to be paid electronically using an electronic image? Check Clearing Act for the 21st Century-WRONG Zero-balance Account Act E.F. Hutton case Electronic Data Interchange Act of 2013 Miller-Orr Act
Electronic Data Interchange Act of 2013 - need to double check
A lockbox is a: Box located in a bank's vault that is rented by a firm and used to hold unprocessed checks Post office box strategically located so that a firm's receivables can be collected faster. Special safe used by a firm for overnight storage of any cash or un-deposited checks. Special safe used by a firm that can only be opened at pre-specified times of the day. Special post office box which can only be opened by prespecified postal inspectors for direct delivery to the addressee.
Post office box strategically located so that a firm's receivables can be collected faster.
GT Motors regularly issues short-term debt to finance its daily operations. Suddenly, the credit markets froze and no funds were available for borrowing. Fortunately, the firm had some cash reserves saved that it was able to use to fund its operations until additional credit was available. The need to retain cash for situations such as this is which one of the following motives for holding cash? Precautionary Speculative Float Transaction Compensating
Precautionary
Which two of the following require liquidity but do not necessarily require cash reserves? Speculative and transaction motives.- WRONG Compensating balance requirement and transaction motive. Transaction and precautionary motives. Compensating balance requirement and precautionary motive. Precautionary and speculative motives.
Precautionary and speculative motives.
Adjustment costs is another name for which one of the following? Borrowing costs Excess cash costs Cash wire costs Shortage costs Cash transfer costs
Shortage costs
Lockboxes: Should be geographically located close to a firm's primary customers. Tend to also be used as concentration accounts. Tend to be negative net present value projects for firms with a large number of sizable transactions. Should be located in remote locations to increase the net disbursement float. Offer no additional benefit to a firm now that the check clearing act for the 21st century has been enacted.
Should be geographically located close to a firm's primary customers.
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? Speculative Compensation Float Transaction Precautionary
Speculative
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? Speculative Compensation Float Transaction Precautionary -WRONG
Speculative
Cash concentration accounts: Tend to increase the funds available for short-term investing. Are all zero-balance accounts. Receive checks directly from all of a firm's customers. That utilize wire transfers rather than automated clearing house transfers are less expensive to maintain. Tend to decrease the efficiency of a firm's cash management system.
Tend to increase the funds available for short-term investing.
Which of the following statements is correct? The target cash balance increases as the interest rate rises. The target cash balance decreases as the order costs increase. The cost of borrowing affects the target cash balance of a firm. A firm has a greater likelihood of needing an unexpected loan when its cash flows are relatively constant over time. Management's desire to maintain a low cash balance has no effect on the borrowing needs of a firm.
The cost of borrowing affects the target cash balance of a firm.
Which one of the following statements is correct? Banks are prohibited from investing cash surpluses on behalf of their customers on a short- term basis. Corporations are not permitted to invest in money market mutual funds but can invest in bank money market accounts. The money market refers to securities that mature in one year or less. The two primary reasons firms hold cash are for seasonal fluctuations and short-term investments. Short-term securities tend to have a high degree of interest rate risk.
The two primary reasons firms hold cash are for seasonal fluctuations and short-term investments.
Which of the following costs related to holding cash are minimized when the level of cash a firm holds is optimized? Opportunity costs. Total costs. Both trading and opportunity costs. - WRONG Trading costs. Trading costs, opportunity costs, and total costs.
Total costs.
