FinManagement Exam 2
The beta of debt is commonly assumed to be -1.0 0.50 0 1.0
0
According to White, Altman, and Weiss, the estimated direct cost of financial distress as a percentage of the market value of a firm is: 8 percent. 3 percent. 5 percent. 10 percent. 1 percent.
3 percent.
Victory Marketing collects 30 percent of its sales in the month of sale, 55 percent in the month following the month of sale, and 13 percent in the second month following the month of sale. Given this, the company will collect _____ sales during the month of May. 55 percent of May 55 percent of March 13 percent of February 30 percent of May 13 percent of April
30 percent of May
If a project's debt level is known over the life of the project, which of the following methods is(are) most applicable? APV Either APV or FTE WACC Either FTE or WACC FTE
APV
When the debt-equity ratio changes over time, the best method(s) to use when evaluating a project is(are): either FTE or WACC. FTE. WACC. either APV or WACC. APV.
APV.
How does one calculate the adjusted present value? Add the pretax cost of debt to the project's all-equity NPV. Add the additional effects of debt to the all-equity project value. Divide the project's levered cash flow by the risk-adjusted rate. Multiply the additional effects of debt by the all-equity project value. Divide the project's levered cash flow by the risk-free rate.
Add the additional effects of debt to the all-equity project value.
Which one of the following statements is false? An aging schedule includes only overdue accounts. Collection efforts may involve legal action. Aging schedules are used to monitor accounts receivable. If sales are seasonal, the percentages shown on an aging schedule will vary during the year.
An aging schedule includes only overdue accounts.
Which one of the following is a source of cash? An increase in fixed assets An increase in accounts receivable An increase in accounts payable The payment of a cash dividend
An increase in accounts payable
Which one of the following is not implied by the pecking order theory? Companies like having financial slack. Companies prefer to borrow up to the point where the financial distress costs offset the tax benefit of debt. Profitable firms tend to use less debt than unprofitable firms. There is no target debt-equity ratio for a firm.
Companies prefer to borrow up to the point where the financial distress costs offset the tax benefit of debt.
The total restocking cost is calculated as: Carrying costs + Fixed costs. Fixed cost per order × Number of orders. Number of orders × Variable cost per unit. Fixed cost per unit × Average inventory. Order size × Variable cost per unit.
Fixed cost per order × Number of orders.
Which one of the following actions is most related to a positive covenant? Furnishing financial statements to the firm's lenders Avoiding a merger while a debt remains unpaid Not selling any major assets without lender approval Limiting the amount of the firm's dividends Not issuing any additional long-term debt
Furnishing financial statements to the firm's lenders
Which one of the following will decrease the net working capital of a firm? Assume the current ratio is greater than 1.0. Paying an accounts payable Collecting an accounts receivable Paying a payment on a long-term debt Selling a fixed asset for book value
Paying a payment on a long-term debt
The adjusted present value method (APV), the flow to equity (FTE) method, and the weighted average cost of capital (WACC) method produce equivalent results, but each can have difficulties making computation impossible at times. Accordingly, which one of the following statements is correct? The APV method is the most commonly used method in actual practice. The WACC method is preferred when evaluating a leveraged buyout. Use the FTE method when the level of debt is known over a project's life. Use the WACC method when the level of debt is known over a project's life. The WACC method is appropriate when the target debt-to-value ratio applies over a project's life.
The WACC method is appropriate when the target debt-to-value ratio applies over a project's life.
Which one of the following statements is correct? The weighted average cost of capital is equal to B/S(RS)(1 − Tc). The cost of equity for an all-equity firm is less than the cost of equity for a levered firm. The discount rate for levered equity is unaffected by the debt-equity ratio. The cost of levered equity is indirectly related to beta. Flotation costs increase the value of RS.
The cost of equity for an all-equity firm is less than the cost of equity for a levered firm.
The upper limit to the credit period is best expressed as the length of the: buyer's cash cycle. buyer's operating cycle. seller's payables period. seller's cash cycle. seller's operating cycle.
buyer's operating cycle.
When valuing a project that is not scale enhancing, an analyst will typically need to: calculate the equity cost of capital using the risk-adjusted beta of another firm. replace the risk-free rate with the market rate of return when computing the project's discount rate. discount the project's cash flows using the market rate of return since the project will diversify the firm's operations. apply the firm's current WACC to the project's cash flows. double the firm's beta value when computing the project WACC.
calculate the equity cost of capital using the risk-adjusted beta of another firm.
All the following items are one of the "five Cs of credit" except: capability. capital. conditions. character. capacity.
capability.
Costs of the firm that rise with increased levels of investment in its current assets are called _____ costs. trading carrying shortage safety order
carrying
The cash cycle is defined as the time between: the sale of inventory and cash collection. cash disbursements and cash collection for an item. the arrival of inventory and cash collected from receivables. selling a product and collecting the accounts receivable. selling a product and paying the supplier of that product.
cash disbursements and cash collection for an item.
The operating cycle can be decreased by: increasing the accounts payable turnover rate. paying accounts payable faster. decreasing the inventory turnover rate. collecting accounts receivable faster.
collecting accounts receivable faster.
A firm's operating cycle will decrease if the firm: decreases the inventory turnover rate. pays accounts payable faster. collects accounts receivable faster. increases the accounts payable turnover rate. discontinues the discount given for early payment of an accounts receivable.
collects accounts receivable faster.
Firms hold cash, in part, to satisfy compensating balance requirements. Compensating balances are cash balances held at: commercial banks to pay implicitly for bank services. commercial banks as emergency funds. the firm, in excess of its transactions needs. the firm, in excess of its cash inflows. the firm, that are below that of its transactions needs.
commercial banks to pay implicitly for bank services.
The manager typically responsible for applying payments to customers' accounts is the: credit manager. purchasing manager. controller. payables manager. production manager.
controller.
When employing the flow-to-equity approach to calculate NPV, the appropriate discount rate is the: all-equity cost of capital minus the weighted average cost of debt. all-equity cost of capital. cost of equity for the levered firm. all-equity cost of capital plus the weighted average cost of debt. weighted average cost of capital.
cost of equity for the levered firm.
The APV method is comprised of the all-equity NPV of a project plus the NPV of financing effects. The four financing side effects are: tax subsidy of dividends, cost of issuing new securities, subsidy of financial distress, and cost of debt financing. subsidy of financial distress, tax subsidy of debt, cost of other debt financing, and cost of issuing new securities. cost of issuing new securities, cost of financial distress, tax subsidy of dividends, and cost of debt financing. cost of issuing new securities, cost of financial distress, tax subsidy of debt, and other subsidies to debt financing.
cost of issuing new securities, cost of financial distress, tax subsidy of debt, and other subsidies to debt financing.
The EOQ model considers all the following factors except the: fixed cost of an order. cost of the inventory. annual sales units. carrying cost. restocking cost.
cost of the inventory.
Financial managers frequently broaden their definition of cash to include: currency, bank checking accounts, as well as stock and bond investments. cash, bond investments, bank checking accounts, and short-term marketable securities. cash and bank accounts only. currency, bank checking accounts, and short-term marketable securities. currency, bank checking accounts, and bond investments.
currency, bank checking accounts, and short-term marketable securities.
A firm's operating cycle will decrease if the firm decreases the: days in accounts payable. speed at which inventory is sold. cash cycle by increasing the accounts payable period. accounts receivable turnover rate. days' sales in inventory.
days' sales in inventory.
Covenants restricting additional borrowings primarily protect the: shareholders from agency costs. shareholders' residual interests in the firm. debtholders from changes in market interest rates. debtholders from the added risk of dilution of their claims.
debtholders from the added risk of dilution of their claims.
Net working capital is defined as the: present value of short-term cash flows. difference between all assets and liabilities. difference between total current assets and cash. difference between current assets and current liabilities. current assets of a business.
difference between current assets and current liabilities.
The explicit costs, such as the legal expenses, associated with corporate default are classified as direct costs of financial distress. indirect bankruptcy costs. debt flotation costs. beta conversion costs.
direct costs of financial distress.
One key reason for establishing a captive finance company is the: lower level of required financial insurance. reduction of legal restrictions on the amount of debt that can be incurred. increased opportunities for internal sales. anticipated decrease in accounts receivable. expected decrease in the cost of the debt required to finance receivables.
expected decrease in the cost of the debt required to finance receivables.
A type of short-term loan in which the borrower sells its receivables to the lender up-front, but at a discount to face value, is called: a bond. a compensating balance. assigned receivables financing. a letter of credit. factored receivables financing.
factored receivables financing.
Capital budgeting decisions are treated separately from capital structure decisions, even though these decisions may be highly interwoven. This interweaving is most apt to result in: firms rejecting positive NPV, all-equity projects because changing to a capital structure with debt will always create negative net present values. firms never changing their capital structure because all capital budgeting decisions will be overridden by capital structure decisions. firms accepting some negative NPV all-equity projects because changing the capital structure adds enough positive leverage tax shield value to create a positive NPV. firms foregoing project analysis and making decisions at random. corporate financial managers first checking with their investment bankers to determine the best type of capital to raise before valuing a project.
firms accepting some negative NPV all-equity projects because changing the capital structure adds enough positive leverage tax shield value to create a positive NPV.
The decision to grant credit should consider all the following except the: delay in revenues from granting credit. probability of nonpayment. fixed costs incurred during the credit period. cost of short-term borrowing. immediate costs of granting credit.
fixed costs incurred during the credit period.
The difference between available cash and book cash is called disbursement float. surplus. collection float. float.
float.
During the process of collecting accounts receivable, a firm can perform all the following actions except: take legal action against the customer as necessary. make personal contact by telephone. forcibly remove property from the buyer's premises. send a delinquency letter of past due status to the customer. employ a collection agency.
forcibly remove property from the buyer's premises.
When analyzing the decision to change the cash discount policy, a firm should select the policy that has the: lowest NPV. lowest variable cost per unit. lowest cash discount. highest order size. highest NPV.
highest NPV.
The use of personal borrowing to change the overall amount of financial leverage to which an individual is exposed is called: the weighted average cost of capital. dividend recapture. homemade leverage. personal offset. private debt placement.
homemade leverage.
Assuming the interest on the debt is fully tax deductible, when firms issue more debt, the present value of the tax shield on debt ________ while the present value of the financial distress costs ________. decreases; decreases decreases; remains constant decreases; increases increases; increases
increases; increases
Bondholders tend to offset the effects of selfish strategies implemented by shareholders by: agreeing to reduce the outstanding principal balances on their loans. increasing the interest rate on monies loaned to the firm. agreeing to reduce the interest rate on existing loans. subordinating their bankruptcy position to the shareholders. restructuring their loans to provide additional time to the firm to make repayment.
increasing the interest rate on monies loaned to the firm.
If a firm were to ________, the firm's cash flows would decrease. decrease costs decrease the interest rate paid on its debt increase sales due to an improved economy incur costs associated with bankruptcy decrease the use of leverage
incur costs associated with bankruptcy
A flexible short-term financial policy: increases the probability that a firm will earn high returns on all its assets. incurs an opportunity cost due to the rate of return that applies to short-term assets. utilizes short-term financing to fund all the firm's assets. advocates a smaller investment in net working capital than a restrictive policy does. increases the likelihood that a firm will face financial distress.
incurs an opportunity cost due to the rate of return that applies to short-term assets.
The cash cycle will decrease as a result of increasing the: payables turnover. days sales in inventory. accounts receivable period. inventory turnover rate.
inventory turnover rate.
Horizon Mortgage is considering issuing $2.5 million in bonds. The finance department at Horizon has stated that issuing the bonds will decrease the value of the firm. Accordingly, you know the finance department believes the firm: currently is all-equity financed and adding debt will cause a decrease in firm value. is at, or has exceeded, its optimal debt-equity ratio. will realize greater tax benefits by issuing equity securities. will suffer from a decrease in its WACC if the bonds are issued. wants to issue too few bonds to obtain the most benefit from debt.
is at, or has exceeded, its optimal debt-equity ratio.
The EOQ model assumes inventory has seasonal fluctuations. will be available just as it is needed for production. is held at a constant level. is sold at a steady rate until it is depleted.
is sold at a steady rate until it is depleted.
The free cash flow hypothesis states that firms with higher levels of free cash flow should reward their managers with bonuses. issuing debt requires payments to creditors thereby reducing the ability of managers to waste resources. firms with greater free cash flow should issue new equity to help minimize the wasting of resources by managers. firms with greater free cash flow will pay higher dividends thereby reducing the risk of financial distress.
issuing debt requires payments to creditors thereby reducing the ability of managers to waste resources.
Which one of the followings is the reason that MM Proposition I without taxes does not hold in the presence of corporate tax? earnings per share are no longer relevant with taxes. bondholders require higher rates of return than stockholders do. debt is more expensive than equity. levered firms pay less taxes compared with identical unlevered firms.
levered firms pay less taxes compared with identical unlevered firms.
A prearranged, short-term bank loan up to a specified limit, made on a formal or informal basis, is called a: letter of credit. line of credit. roll-over. compensating balance. cleanup loan.
line of credit.
A firm that adopts a flexible short-term financial policy is more apt to have: lower carrying costs than shortage costs. a relatively low level of current assets. greater short-term financing needs than if the firm adopted a restrictive policy. lower shortage costs than carrying costs.
lower carrying costs than shortage costs.
Lockboxes can reduce ________ float by being located close to the source of payment. mailing availability in-house processing clearing disbursement
mailing
Flexible short-term financial policies tend to: minimize the investment in inventory. maintain low accounts receivable balances. support few investments in marketable securities. maintain large cash balances.
maintain large cash balances.
Assume you graph the costs of granting credit against the amount of credit extended. The optimal credit amount is then determined by the point which maximizes the total cost curve. minimizes the total cost curve. minimizes the opportunity costs of granting credit. minimizes the carrying costs of granting credit.
minimizes the total cost curve.
The firm's capital structure refers to the mix of current and fixed assets a firm holds. mix of debt and equity used to finance the firm's assets. amount of capital invested in the firm. amount of dividends a firm pays.
mix of debt and equity used to finance the firm's assets.
If a customer is extended credit terms of 1/5, net 15, it means the customer has been granted a: one percent discount for paying within five days. credit period of 10 days. total credit period of 20 days. five percent discount for paying the next day. 1/5 percent discount for paying within 15 days.
one percent discount for paying within five days.
In a world with taxes and financial distress, when a firm is operating with the optimal capital structure the: overall benefits of debt have all been realized. weighted average cost of capital will be maximized. required return on assets will be at its maximum point. firm will be all-equity financed. debt-equity ratio will be minimized.
overall benefits of debt have all been realized.
One primary reason concentration bank accounts are established is to increase disbursement float. pool funds. reduce default risk. control disbursements for a specific purpose.
pool funds.
One primary reason concentration bank accounts are established is to: increase disbursement float. pool funds. replace traditional lockboxes. control disbursements for a specific purpose. reduce default risk.
pool funds.
On June 1, a firm invoices a customer and offers terms of 2/10 net 30. The customer: receives a discount of 2 percent if payment is made on June 1 and pays a penalty of 10 percent if payment is made after July 1. must pay a penalty of 2/10 of one percent if payment is made later than July 1. must pay a penalty of 10 percent if payment is made later than 2 days after July 1. receives a discount of 2 percent if payment is made within 10 days. receives a discount of 2 percent if payment is made at least 10 days prior to July 1.
receives a discount of 2 percent if payment is made within 10 days.
According to MM Proposition II with no taxes, the: cost of debt must equal the cost of equity. required return on equity is a linear function of the firm's debt-equity ratio. required return on assets exceeds the weighted average cost of capital. return on assets is determined by financial risk. cost of equity in inversely related to the firm's debt-equity ratio.
required return on equity is a linear function of the firm's debt-equity ratio.
All of these are carrying costs of inventory except: storage costs. theft. insurance. restocking costs.
restocking costs.
The minimum level of inventory a firm wants to keep on hand at all times is referred to as: the base level. keiretsu. safety stock. the opportunity cost. the reorder point.
safety stock.
All the following actions can create disbursement float except the: distribution of cash dividends. disbursement of funds to a supplier. payment of wages. sale of an asset. payment for raw materials.
sale of an asset.
The most common means of financing a temporary cash deficit is a short-term unsecured bank loan. long-term unsecured bank loan. short-term issue of corporate bonds. short-term secured bank loan.
short-term unsecured bank loan.
Costs of the firm that fall with increased levels of investment in its current assets are called _____ costs. payables shortage debt equity carrying
shortage
A levered firm is a company that has: an all-equity capital structure. accounts payable as its only liability. a tax loss carry forward. some debt in its capital structure. taxable income.
some debt in its capital structure.
A commercial draft typically: specifies that the purchaser use the seller's bank as the guarantor. involves a lien on the purchasers' current assets. is signed upon delivery of the goods. requires payment prior to the delivery of the goods. specifies the payment amount and payment due date.
specifies the payment amount and payment due date.
Cash discounts speed up the collection of receivables. increase profit margins on sales. increase the amount of credit offered. were first offered in the early 1900s.
speed up the collection of receivables.
When comparing levered versus unlevered capital structures, leverage works to increase EPS for high levels of EBIT because interest payments on the debt stay fixed, leaving more income to be distributed over more shares. stay fixed, leaving more income to be distributed over fewer shares. stay fixed, leaving less income to be distributed over more shares. stay fixed, leaving less income to be distributed over fewer shares.
stay fixed, leaving more income to be distributed over fewer shares.
Money market preferred stock offers competitive rates of return similar to traditional money-market instruments but: still provides the corporate investor with the tax exclusion on dividend income. forfeits the tax benefits normally provided to corporate shareholders. is only an overnight investment. has a fixed rate of dividend income. has highly volatile stock prices due to the fixed coupon.
still provides the corporate investor with the tax exclusion on dividend income.
One of the indirect costs of bankruptcy is the effect that a potential bankruptcy has on the firm's decisions. The general result is that bondholders expropriate value from stockholders by selecting high-risk projects. the firm will always select the lowest-risk project available. the firm will rank all projects and select the project which results in the highest expected firm value. stockholders expropriate value from bondholders by selecting high-risk projects.
stockholders expropriate value from bondholders by selecting high-risk projects.
One of the indirect costs of bankruptcy is the incentive to underinvest. Such underinvestment generally would result in: the firm turning down positive NPV projects that would clearly be accepted if the firm were all-equity financed. shareholders making decisions based on the best interests of the bondholders. the firm accepting more projects than it would if the probability of bankruptcy was ignored. the firm selecting all projects with positive NPVs. bondholders contributing the full amount of any new investment, but both stockholders and bondholders sharing in the benefits of those investments.
the firm turning down positive NPV projects that would clearly be accepted if the firm were all-equity financed.
In leveraged buyouts, the WACC approach to valuation is not as useful as the APV approach because: the future reductions in debt are known at the time of the LBO. there is greater risk with an LBO. the value of the levered and unlevered firms are equal in an LBO. there is no interest tax shield with the WACC. WACC only applies to unlevered projects.
the future reductions in debt are known at the time of the LBO.
According to the pecking-order theory, when funding capital projects, firms should: issue debt first. always issue equity to avoid financial distress costs. always issue debt so the market won't know when managers believe the stock is overvalued. issue new equity first. use internal financing first.
use internal financing first.
The reorder point considers all the following factors except the: minimum desired inventory level. safety stock. delivery time. variable costs per unit. rate of sales.
variable costs per unit.
The value of a firm is maximized when the: cost of equity is maximized. levered cost of capital is maximized. tax rate is zero. debt-equity ratio is minimized. weighted average cost of capital is minimized.
weighted average cost of capital is minimized.
When a firm writes a check, there is an immediate decrease in the _____ balance, but no immediate change in the _____ balance. bank; ledger available; book bank; collected ledger; book book; bank
book; bank
With respect to a lockbox system of cash collections, which one of the following statements is correct? Checks are held by the bank until the payee firm approves them to start the check-clearing process. Electronic lockboxes have totally replaced traditional lockbox systems. Mailing time is reduced while the collection time remains constant. Checks can be deposited prior to the payments being applied to the customers' accounts. Mailing time is reduced but the processing delay is increased.
Checks can be deposited prior to the payments being applied to the customers' accounts.
Which one of the following securities is a money-market security that has limited marketability? Commercial paper Ordinary preferred stock Jumbo certificates of deposit (CD's) U.S. Treasury bills Common stock
Commercial paper
With respect to zero-balance accounts, which one of the following statements is false? Zero-balance accounts are frequently used for payroll disbursements. The master and the zero-balance accounts are frequently located within the same bank. Zero-balance accounts are set up to process disbursements only. Each zero-balance account maintains a minimal level of safety stock. Funds are automatically transferred into the zero-balance account as checks are presented for payment.
Each zero-balance account maintains a minimal level of safety stock.
Which one of the followings is a direct, rather than an indirect, cost of financial distress? Key employee leaving for another job due to concerns over job security given the company's financial status Loss of a key supplier due to late payments to that supplier Fees paid to financial advisors related to bankruptcy matters Loss of customers due to concerns the company will close
Fees paid to financial advisors related to bankruptcy matters
The concept that the value of the firm is independent of its capital structure is called: MM Proposition I (no taxes). the capital asset pricing model. the law of one price. the efficient markets hypothesis. MM Proposition II (no taxes).
MM Proposition I (no taxes).
The idea of homemade leverage is employed as an argument in support of: MM Proposition I with no tax. MM Proposition I with tax. no MM Proposition. MM Proposition II with tax. MM Proposition II with no tax.
MM Proposition I with no tax.
If a firm's accounts receivable period is 30 days, it will collect payment for _____ sales during the second quarter of a calendar year. March, April, and May January, February, and March December, January, and February February and March February, March, and April
March, April, and May
Which one of the following statements is true regarding promissory notes? Promissory notes are used for small orders only. A promissory note must be signed and delivered prior to goods being shipped. Promissory notes are used when firms do not anticipate a problem with collections. Promissory notes usually involve no cash discount. Most trade credit arrangements use promissory notes.
Promissory notes usually involve no cash discount.
The cost of equity for an all-equity firm is designated as: RS(1 − TC). R0(1 − TC). R0. RD. Rs.
R0.
Which one of the following money market securities generally has the shortest life? Jumbo certificates of deposit Repurchase agreements U.S. Treasury bills Money market preferred stock Commercial paper
Repurchase agreements
Which one of the following actions is a use of cash? Submitting taxes to the government Sale of a marketable security held by the firm Obtainment of a long-term loan Collection of a past-due accounts receivable Selling goods from inventory
Submitting taxes to the government
Which one of the following is a use of cash? Sale of a marketable security held by the firm Selling goods from inventory Submitting taxes to the government Obtainment of a long-term loan
Submitting taxes to the government
Which one of the following statements accurately describes a characteristic of a conditional sales contract? The seller receives a prepayment in full. The seller retains legal ownership until the buyer completes payment for the goods. The invoice is paid in one lump sum at the end of the credit period. The ownership of the goods changes to the buyer immediately upon delivery. The buyer is compensated for its opportunity costs.
The seller retains legal ownership until the buyer completes payment for the goods.
The basic assumption of the ABC approach to inventory management is that a small portion of inventory represents a large portion of inventory costs. most items are ordered, stocked, and sold in a relatively short period of time. firms should receive a customer's order before incurring inventory costs. inventory should be divided dependent on the type of cash or credit sale anticipated.
a small portion of inventory represents a large portion of inventory costs.
A short-term loan which is secured by inventory that is held in trust is referred to as: field warehousing financing. a blanket inventory lien. a trust receipt financing arrangement. a banker's acceptance. a secured line of credit.
a trust receipt financing arrangement.
The fastest but most expensive way for a firm to transfer surplus funds from the local deposit bank to the concentration bank is: a wire transfer. an automated clearinghouse transfer. a cashier's check. a depository transfer check. the firm's in-house transfer system.
a wire transfer.
When ________, cash increases. equity decreases current liabilities decrease fixed assets increase accounts payable increases long-term debt decreases
accounts payable increases
To calculate the adjusted present value, you should divide the project's levered cash flow by the risk-adjusted rate. multiply the additional effects of debt by the all-equity project value. add the additional effects of debt to the all-equity project value. divide the project's levered cash flow by the risk-free rate.
add the additional effects of debt to the all-equity project value.
Shareholders sometimes pursue selfish strategies when the firm experiences financial distress. These actions generally result in: lower agency costs, as shareholders have more control over the firm's assets. investments with risks similar to those of the current firm. undertaking scale-enhancing projects. agency costs to bondholders. no action by debtholders since such strategies are shareholder concerns.
agency costs to bondholders.
Flotation costs: are deducted as a business expense in the year incurred. cannot be deducted as a business expense. are amortized using the straight-line method over the life of the loan. are amortized using a declining-balance method over the life of the loan. are deducted as a business expense at the time the loan is repaid in full.
are amortized using the straight-line method over the life of the loan.
U.S. Treasury bills: are issued for time periods as short as one week. are sold at weekly auctions. must be held to maturity and may not be resold. are subject to the same risks as short-term tax exempts. all have initial maturities of 90 days or less.
are sold at weekly auctions.
Collection float includes: billing time, mailing time, processing delay, and availability delay. availability delay and processing delay only. mailing time, processing delay, and availability delay. mailing time and processing delay only. availability delay only.
availability delay and processing delay only.
Most large firms hold a larger cash balance than most models imply because: it is too difficult to estimate the costs of security transactions. cash is costless and need not be managed closely. banks are compensated by account balances for payment of services. corporations have few bank accounts and it is difficult to manage their cash. the costs of holding cash for these firms is negligible.
banks are compensated by account balances for payment of services.
