Question 1

Your firm spends $54,000 a week to pay bills and maintains a lower cash balance limit of $45,000.The standard deviation of your disbursements is $12,100.The applicable interest rate is 4.5 percent and the fixed cost of transferring funds is $55.What is your opportunity cost of holding cash based on the BAT model?

Accepted Answer

A)  $1,318
B)  $1,864
C)  $2,204
D)  $2,311E) A) and B)
F) B) and D)

Question 2

Municipal bonds:

Accepted Answer

A)  are less liquid than U.S.Treasury bills.
B)  produce income that is subject to federal income taxation.
C)  generally pay a higher coupon than corporate bonds.
D)  are also referred to as commercial paper.
E)  are issued by the federal government.F) A) and E)
G) None of the above

Question 3

The cash found in a cash drawer that a check-out clerk uses to make change is an example of which of the following motives for holding cash?

Accepted Answer

A)  speculative
B)  daily float
C)  compensating balance
D)  precautionary
E)  transactionF) A) and B)
G) A) and C)

Question 4

The Miller-Orr model assumes that:

Accepted Answer

A)  the cash balance is depleted at regular intervals.
B)  all cash flows are known with certainty.
C)  the average change in the daily cash flows is positive.
D)  management will set both the lower and the upper desired levels of cash.
E)  the cash balance fluctuates in a random manner.F) None of the above
G) A) and B)

Question 5

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 C)
G) B) and C)

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 D)
G) A) and D)

Question 7

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 B)
G) A) and C)

Question 8

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 B)

Question 9

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) B) and E)

Question 10

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

Question 11

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) None of the above
G) B) and D)

Question 12

Theo's Bar & Grill needs $153,000 a week to pay bills.The standard deviation of the weekly disbursements is $9,600.The firm has established a lower cash balance limit of $40,000.The applicable interest rate is 3.5 percent and the fixed cost of transferring funds is $40.Based on the BAT model,what is the optimal average cash balance?

Accepted Answer

A)  $36,199
B)  $49,568
C)  $67,426
D)  $99,136
E)  $112,400F) C) and D)
G) B) and E)

Question 13

Explain how the unethical use of uncollected funds has been impacted by the growth of on-line retailing and banking.

Accepted Answer

Whenever cash is moved electro...

Question 14

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

Question 15

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

Question 16

Cross Country Trucking provides transportation services exclusively for 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)  2.11 days
B)  2.27 days
C)  2.46 days
D)  2.50 days
E)  2.78 daysF) A) and B)
G) All of the above

Question 17

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

Question 18

Brown Trucking is buying a U.S.Treasury bill today with the understanding that the seller will buy it back tomorrow at a slightly higher price.This investment is known as a:

Accepted Answer

A)  commercial paper transaction.
B)  repurchase agreement.
C)  private certificate of deposit.
D)  revenue anticipation note.
E)  bill anticipation note.F) A) and E)
G) A) and D)

Question 19

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

Question 20

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

Exam 19: Cash and Liquidity Management

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
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Brown Trucking is buying a U.S.Treasury bill today with the understanding that the seller will buy it back tomorrow at a slightly higher price.This investment is known as a:

Correct Answer
verified

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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Cross Country Trucking provides transportation services exclusively for 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

The cash found in a cash drawer that a check-out clerk uses to make change is an example of which of the following motives for holding cash?

Correct Answer
verified

Correct Answer
verified

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
verified

Correct Answer
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The Miller-Orr model:

Correct Answer
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Cash management primarily involves:

Correct Answer
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Explain how the unethical use of uncollected funds has been impacted by the growth of on-line retailing and banking.

Correct Answer
verified
Whenever cash is moved electro...
View Answer

Municipal bonds:

Correct Answer
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Correct Answer
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Correct Answer
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The Miller-Orr model assumes that:

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

Correct Answer
verified

Exam 19: Cash and Liquidity Management

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

Brown Trucking is buying a U.S.Treasury bill today with the understanding that the seller will buy it back tomorrow at a slightly higher price.This investment is known as a:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Disbursements float:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The cash found in a cash drawer that a check-out clerk uses to make change is an example of which of the following motives for holding cash?

Correct AnswerverifiedShow Answer

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 AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Miller-Orr model:

Correct AnswerverifiedShow Answer

Cash management primarily involves:

Correct AnswerverifiedShow Answer

Explain how the unethical use of uncollected funds has been impacted by the growth of on-line retailing and banking.

Correct AnswerverifiedWhenever cash is moved electro...View AnswerShow Answer

Municipal bonds:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Miller-Orr model assumes that:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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 Answer
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Correct Answer
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Whenever cash is moved electro...
View Answer

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