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Home Roasted Turkeys disburses checks every 4 weeks that average $70,000 and take 5 days to clear.How much interest can the company earn if it delays transfer of funds from an interest-bearing account that pays 0.02 percent per day for these 5 days? Ignore the effects of compound interest.Assume 52 weeks in a year.


A) $36
B) $91
C) $182
D) $364
E) $910

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

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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. 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. A) 2.11 days B) 2.27 days C) 2.46 days D) 2.50 days E) 2.78 days


A) 2.11 days
B) 2.27 days
C) 2.46 days
D) 2.50 days
E) 2.78 days

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

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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?


A) $2.04
B) $6.92
C) $14.95
D) $22.42
E) $32.17

F) B) and D)
G) C) and D)

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Disbursements float:


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

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Which one of the following statements is correct concerning zero-balance accounts?


A) Each zero-balance account is offset by a compensating balance account.
B) Zero-balance accounts are used for depositing incoming funds.
C) A master account must be used in conjunction with a zero-balance account.
D) Zero-balance accounts are used solely in conjunction with a lockbox system.
E) Zero-balance accounts are still required to maintain a minimal balance.

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

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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. 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. A) $1,386.67 B) $1,407.19 C) $4,750.00 D) $6,833.33 E) $6,933.33


A) $1,386.67
B) $1,407.19
C) $4,750.00
D) $6,833.33
E) $6,933.33

F) A) and E)
G) D) and E)

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A repurchase agreement generally has a maximum life of:


A) 1 day.
B) a few days.
C) one month.
D) one to three months.
E) three to six months.

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

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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?


A) opportunity costs
B) trading costs
C) total costs
D) both trading and opportunity costs
E) trading costs, opportunity costs, and total costs

F) B) and D)
G) C) and D)

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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?


A) $1,431
B) $2,862
C) $3,034
D) $4,912
E) $5,358

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

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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?


A) 1.7 days
B) 2.6 days
C) 4.4 days
D) 4.8 days
E) 6.2 days

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

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Hand Tools, Inc.receives an average of 611 checks a day.The average amount per check is $425.The firm is considering a lockbox system which it anticipates will reduce the average collection time by 1 day.The bank charges $0.275 a check for this service.The daily interest rate on Treasury bills is 0.013 percent.What is the average daily cost of the lockbox system?


A) $31.16
B) $54.19
C) $168.03
D) $180.11
E) $199.19

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

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Rosewell International receives an average of 268 checks a day with an average amount per check of $780.The firm is considering a lockbox system which it anticipates will reduce the average collection time by 1.4 days.The bank charges $0.21 a check for this service.The daily interest rate on Treasury bills is 0.02 percent.What is the net present value of this lockbox arrangement?


A) -$61,640
B) -$11,256
C) $11,256
D) $30,820
E) $61,640

F) C) and D)
G) A) and C)

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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?


A) $48,334
B) $57,623
C) $82,623
D) $236,334
E) $247,334

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

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An account into which funds are deposited only in an amount equal to the value of the checks presented for payment that day is called a _____ account.


A) lockbox
B) concentration
C) zero-balance
D) compensating balance
E) revolving

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

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Which two of the following are the primary reasons why firms temporarily accumulate large cash surpluses? I.cyclical activities II.desire to invest funds III.daily operations IV.fixed asset purchases


A) I and III only
B) II and IV only
C) I and II only
D) III and IV only
E) I and IV only

F) A) and E)
G) A) and D)

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Collection float:


A) is more desirable to firms than disbursement float.
B) is totally eliminated by the installation of a lockbox system.
C) exists when a firm's available balance exceeds its book balance.
D) can be avoided by collecting payments electronically at the time of sale.
E) is eliminated by implementing a concentration banking system.

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

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The Cow Pie Spreader Co.spends $214,000 a week to pay bills and maintains a lower cash balance limit of $150,000.The standard deviation of the disbursements is $16,000.The applicable weekly interest rate is 0.025 percent and the fixed cost of transferring funds is $49.What is the firm's cash balance target based on the Miller-Orr model?


A) $183,511
B) $208,511
C) $251,006
D) $254,545
E) $258,878

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

Correct Answer

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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.?


A) 56
B) 68
C) 74
D) 83
E) 89

F) C) and E)
G) B) and D)

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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. 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. A) $1,143.33 B) $2,546.67 C) $2,983.33 D) $6,166.67 E) $6,860.00


A) $1,143.33
B) $2,546.67
C) $2,983.33
D) $6,166.67
E) $6,860.00

F) B) and E)
G) B) and C)

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National Exporters deals strictly with two 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 that every month has 30 days. National Exporters deals strictly with two 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 that every month has 30 days. A) $2,653.33 B) $3,006.33 C) $4,533.33 D) $7,811.67 E) $8,600.00


A) $2,653.33
B) $3,006.33
C) $4,533.33
D) $7,811.67
E) $8,600.00

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

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