Question 1

Beasley Enterprises has an agreement with Downtown Bank whereby the bank handles $1.02 million in collections a day and requires a $750,000 compensating balance. Beasley is contemplating cancelling the agreement and dividing its eastern region so that two other banks would handle its business. Banks A and B would each handle $.51 million of collections per day and each requires a compensating balance of $400,000. Collections should be accelerated by one day if the eastern region is divided. The T-bill rate is 2.97 percent annually. What is the amount of the annual net savings if this plan is adopted?

Accepted Answer

A)   −$20,210
B)   $28,809
C)   $31,325
D)   $29,406
E)   −$19,706F) A) and B)
G) B) and E)

Question 2

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

Question 3

Which two of the following require liquidity but do not necessarily require cash reserves?

Accepted Answer

A)   Transaction and precautionary motives
B)   Compensating balance requirement and precautionary motive
C)   Compensating balance requirement and transaction motive
D)   Speculative and transaction motives
E)   Precautionary and speculative motivesF) A) and E)
G) A) and D)

Question 4

A repurchase agreement generally has a maximum life of:

Accepted Answer

A)   one day.
B)   a few days.
C)   one month.
D)   one to three months.
E)   three to six months.F) D) and E)
G) A) and B)

Question 5

A jumbo CD:

Accepted Answer

A)   is issued by the federal government.
B)   generally matures between two and five years.
C)   is a loan of $100,000 or more to a municipality.
D)   is a loan of $1 million or more on a short-term basis.
E)   is a short-term loan of $100,000 or more to a commercial bank.F) C) and D)
G) A) and B)

Question 6

A mail-order company processes 8,200 checks per month. Of these, 64 percent are for $39 while the remainder are for $69. The $39 checks have a collection delay of 2.1 days on average while the $69 checks are delayed 1.8 days on average. Assume each month has 30 days. The interest rate is 5.2 percent per year. What is the maximum amount that should be paid to reduce the weighted average float to 1.5 days?

Accepted Answer

A)   $10,990
B)   $6,130
C)   $8,650
D)   $5,825
E)   $9,675F) A) and B)
G) A) and C)

Question 7

Hoyes Lumber generally receives three checks a month in the amounts of $654, $987, and $1,310. The $987 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.

Accepted Answer

A)   $131
B)   $143
C)   $147
D)   $128
E)   $122F) None of the above
G) All of the above

Question 8

Currently, it requires two days to process the checks received in the mail from your customers. The average mail time is 2.7 days and the check clearing time is .97 days. If you adopt a lockbox system, the mail time will be cut in half. In addition, if employees are reassigned, checks could be processed in one day. How long will your collection time be if both the lockbox system and the job reassignments are implemented?

Accepted Answer

A)   3.63 days
B)   3.25 days
C)   3.32 days
D)   3.29 days
E)   3.36 daysF) B) and C)
G) B) and D)

Question 9

Paper Mfg. is investigating a lockbox system that would reduce its collection time by two days at a cost of $.42 per transaction. The company receives an average of 498 payments per day with an average value of $1,687 each. The Treasury daily interest rate is .012 percent. What is the NPV of adopting the lockbox system?

Accepted Answer

A)   $28,506
B)   −$71,018
C)   $54,234
D)   $84,468
E)   −$62,748F) C) and E)
G) All of the above

Question 10

Turkey Farms disburses checks every four weeks that have an average total of $68,900 each which take 3.4 days to clear. How much interest can the company earn annually if it delays transfer of funds from an interest-bearing account that pays .014 percent per day while the payments clear? Ignore the effects of compound interest. Assume each year has exactly 52 weeks.

Accepted Answer

A)   $33
B)   $87
C)   $131
D)   $364
E)   $426F) A) and B)
G) B) and E)

Question 11

Southern Meals generally receives four checks a month. One of the checks is for $569 and has a collection delay of three days. The others amounts are $1,318, $907, and $113 and have a one-day delay. Given this information, what is the amount of the average daily float? Assume each month has 30 days.

Accepted Answer

A)   $135
B)   $106
C)   $94
D)   $148
E)   $113F) A) and B)
G) A) and E)

Question 12

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 that collects the checks from the lockbox is responsible for recording the payments on the customer's accounts.
C)   Payments received in a lockbox are transferred immediately to the concentration account.
D)   A higher dollar return may be earned on short-term investments due to the cash management system.
E)   The concentration account must be zeroed out on a daily basis.F) All of the above
G) A) and E)

Question 13

Cross Trucking provides services exclusively for three customers. The monthly amounts paid by these customers along with their respective collection delays are: $81,900 with 1.5 days, $47,300 with 2 days, and $68,400 with 2.5 days. Given this information, what is the weighted average delay?

Accepted Answer

A)   2.11 days
B)   1.94 days
C)   1.97 days
D)   2.06 days
E)   2.01 daysF) None of the above
G) A) and C)

Question 14

A lockbox system:

Accepted Answer

A)   entails the use of a bank that is centrally located to collect payments on a nationwide basis.
B)   is designed to deposit payments prior to recording those payments to the customers' accounts.
C)   is used to reduce disbursement float.
D)   is efficient regardless of the locations selected for lockbox destinations.
E)   automatically records payments to customers' accounts as soon as the payments are received at the lockbox location.F) C) and D)
G) B) and E)

Question 15

Which one of the following statements is correct?

Accepted Answer

A)   Money market accounts are low-risk, high-return investments.
B)   The rate of return earned on short-term securities tends to exceed that earned on long-term securities.
C)   U.S. Treasury bills are well suited for short-term investments.
D)   The income earned on U.S. Treasury bills is exempt from all taxation.
E)   Short-term investments tend to have high levels of default risk.F) B) and C)
G) A) and B)

Question 16

The cash used to make change when customers pay for their purchases in cash is an example of the ________ motive for holding cash.

Accepted Answer

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

Question 17

Atlas Builders deals strictly with five customers. The average amounts these customers pay per month are $17,400, $15,900, $22,500, $57,800, and $64,300. The smaller two payments have a collection delay of three days while the others only have a one-day delay. Assume each month has 30 days. What is the amount of the average daily receipts?

Accepted Answer

A)   $5,930
B)   $6,920
C)   $8,150
D)   $14,140
E)   $16,680F) A) and B)
G) A) and E)

Question 18

Wilson Publishers is considering implementing a lockbox system that is expected to reduce average collection time by 2.5 days. On an average day, the company receives 1,327 checks with an average value of $49 each. The daily interest rate on Treasury bills is .011 percent. What is the anticipated amount of the daily savings if this system is implemented?

Accepted Answer

A)   $2.48
B)   $13.29
C)   $14.45
D)   $17.88
E)   $15.78F) A) and B)
G) C) and D)

Question 19

Money market securities:

Accepted Answer

A)   are highly marketable.
B)   pay interest that is exempt from federal taxation.
C)   generally mature in 6 to 18 months.
D)   tend to have a high level of default risk.
E)   are issued only by governmental and banking organizations.F) A) and B)
G) A) and C)

Question 20

Which one of the following collection times is correctly described?

Accepted Answer

A)   The processing delay starts when a bill is mailed and ends when the payment is received.
B)   Mailing time begins when a bill is mailed and ends when the payment is received.
C)   Collection time begins when a bill is mailed and ends when the cash payment is available for spending.
D)   Availability delay begins when a payment is deposited and ends when the cash from that payment is available for spending.
E)   Processing delay begins when a bill is mailed and ends when the payment of that bill is deposited into the bank.F) A) and B)
G) A) and C)

Exam 19: Cash and Liquidity Management

The cash used to make change when customers pay for their purchases in cash is an example of the ________ motive for holding cash.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

A lockbox system:

Correct Answer
verified

The Miller-Orr model assumes that:

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

A repurchase agreement generally has a maximum life of:

Correct Answer
verified

Which one of the following collection times is correctly described?

Correct Answer
verified

Money market securities:

Correct Answer
verified

Correct Answer
verified

Cross Trucking provides services exclusively for three customers. The monthly amounts paid by these customers along with their respective collection delays are: $81,900 with 1.5 days, $47,300 with 2 days, and $68,400 with 2.5 days. Given this information, what is the weighted average delay?

Correct Answer
verified

Correct Answer
verified

Hoyes Lumber generally receives three checks a month in the amounts of $654, $987, and $1,310. The $987 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.

Correct Answer
verified

Which one of the following statements is correct?

Correct Answer
verified

Southern Meals generally receives four checks a month. One of the checks is for $569 and has a collection delay of three days. The others amounts are $1,318, $907, and $113 and have a one-day delay. Given this information, what is the amount of the average daily float? Assume each month has 30 days.

Correct Answer
verified

Correct Answer
verified

A jumbo CD:

Correct Answer
verified

Which two of the following require liquidity but do not necessarily require cash reserves?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Exam 19: Cash and Liquidity Management

The cash used to make change when customers pay for their purchases in cash is an example of the ________ motive for holding cash.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A lockbox system:

Correct AnswerverifiedShow Answer

The Miller-Orr model assumes that:

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

A repurchase agreement generally has a maximum life of:

Correct AnswerverifiedShow Answer

Which one of the following collection times is correctly described?

Correct AnswerverifiedShow Answer

Money market securities:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Cross Trucking provides services exclusively for three customers. The monthly amounts paid by these customers along with their respective collection delays are: $81,900 with 1.5 days, $47,300 with 2 days, and $68,400 with 2.5 days. Given this information, what is the weighted average delay?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Hoyes Lumber generally receives three checks a month in the amounts of $654, $987, and $1,310. The $987 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.

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A jumbo CD:

Correct AnswerverifiedShow Answer

Which two of the following require liquidity but do not necessarily require cash reserves?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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