Question 1

Which of the following variables are included in the BAT model?
I. upper cash limit
II. interest rate on marketable securities
III. opportunity cost of holding cash
IV. fixed cost of each securities trade

Accepted Answer

A)  II only
B)  I and III only
C)  II and IV only
D)  II, III, and IV only
E)  I, III, and IV onlyF) All of the above
G) B) and C)

Question 2

Paper Submarine Manufacturing is investigating a lockbox system to reduce its collection time. It has determined the following:  The total collection time will be reduced by 2 days if the lockbox system is adopted. What is the NPV of adopting the lockbox system?

Accepted Answer

A)  $600,000
B)  $775,000
C)  $975,000
D)  $1,200,000
E)  $1,425,000F) A) and B)
G) B) and E)

Question 3

Never Again Enterprises has an agreement with The Worth Bank whereby the bank handles $3.12 million in collections a day and requires a $1,000,000 compensating balance. Never Again is contemplating canceling the agreement and dividing its eastern region so that two other banks will handle its business. Banks A and B will each handle $1.56 million of collections a day, and each requires a compensating balance of $1,550,000. Never Again's financial management expects that collections will be accelerated by one day if the eastern region is divided. The T-bill rate is 5 percent annually. What is the amount of the annual net savings if this plan is adopted?

Accepted Answer

A)  $10,200
B)  $51,000
C)  $76,500
D)  $102,000
E)  $125,000F) B) and C)
G) A) and B)

Question 4

Theo's Bar & Grill needs $147,000 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 $45. Based on the BAT model, what is the optimal average cash balance?

Accepted Answer

A)  $36,199
B)  $49,568
C)  $70,100
D)  $99,136
E)  $112,400F) None of the above
G) B) and C)

Question 5

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

Question 6

The Blue Star generally receives only 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 every month has 30 days.

Accepted Answer

A)  $971.43
B)  $1,456.67
C)  $3,351.33
D)  $5,666.67
E)  $6,800.00F) A) and E)
G) None of the above

Question 7

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?

Accepted Answer

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

Question 8

You are considering implementing a lockbox system for your firm. The system is expected to reduce the average collection time by 1.2 days. On an average day, your firm receives 320 checks with an average value of $99 each. The daily interest rate on Treasury bills is 0.014 percent. What is the anticipated amount of the daily savings if this system is implemented?

Accepted Answer

A)  $2.61
B)  $3.29
C)  $4.45
D)  $5.32
E)  $5.78F) C) and D)
G) A) and C)

Question 9

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 0.04 percent and the fixed cost of transferring funds is $50. What is your optimal average cash balance based on the Miller-Orr model?

Accepted Answer

A)  $79,116
B)  $83,208
C)  $110,315
D)  $237,348
E)  $249,624F) D) and E)
G) A) and D)

Question 10

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.

Accepted Answer

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

Question 11

Which of the following statements related to the BAT model is correct?
I. The BAT model is used to determine the target cash balance for a firm.
II. The BAT model is rarely used in business due to its complex nature.
III. The BAT model is a model that helps eliminate a firm's collection float.
IV. One disadvantage of the BAT model is the fact that it assumes all cash outflows are known with certainty.

Accepted Answer

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

Question 12

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

Question 13

Adjustment costs is another name for which one of the following?

Accepted Answer

A)  borrowing costs
B)  shortage costs
C)  cash transfer costs
D)  cash wire costs
E)  excess cash costsF) All of the above
G) A) and D)

Question 14

Purple Feet Wine, Inc. receives an average of $6,000 in checks per day. The delay in clearing is typically 3 days. The current interest rate is 0.025 percent per day. Assume 30 days per month. What is the highest daily fee the company should be willing to pay to eliminate its float entirely?

Accepted Answer

A)  $1.50
B)  $3.00
C)  $3.75
D)  $4.50
E)  $6.00F) C) and D)
G) None of the above

Question 15

Which one of the following statements is correct?

Accepted Answer

A)  Funds received via automated clearinghouse transfers are available that day.
B)  A depository transfer check is the most costly means of transferring funds into a cash concentration account.
C)  The means selected to transfer funds into a concentration account depends primarily upon the size of the transfers.
D)  Concentration accounts are used to transfer funds to lockbox locations as needed.
E)  The most expedient means of transferring funds into a concentration account is a wire transfer.F) A) and C)
G) C) and E)

Question 16

Parkway Express needs $318,000 a week to pay bills. The standard deviation of the weekly disbursements is $31,000. The firm has established a lower cash balance limit of $60,000. 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?

Accepted Answer

A)  $3,873
B)  $4,918
C)  $5,207
D)  $109,283
E)  $110,440F) C) and D)
G) A) and E)

Question 17

Your average customer is located 4.3 mailing days away from your firm. You have determined that, on average, it is taking your staff 1.5 days to process payments received from customers. In addition, it takes an average of 2.2 days for your funds to be available for use once you have made your bank deposit. What is your firm's collection time?

Accepted Answer

A)  2.2 days
B)  3.7 days
C)  4.3 days
D)  5.8 days
E)  8.0 daysF) A) and B)
G) C) and E)

Question 18

A cash concentration account:

Accepted Answer

A)  is frequently used as a source of funds for short-term investments.
B)  cannot be used to cover a compensating balance requirement.
C)  cannot be used to transfer funds into zero-balance accounts.
D)  is generally the only bank account a firm needs to efficiently manage its cash.
E)  is another name for a controlled disbursement account.F) B) and C)
G) B) and D)

Question 19

The BAT model is used to:

Accepted Answer

A)  maximize the benefits of leverage.
B)  determine the optimal cash position of a firm.
C)  eliminate all daily cash surpluses.
D)  analyze the cash balance given fluctuating cash inflows and outflows.
E)  maximize the opportunity costs of holding cash.F) A) and B)
G) A) and C)

Question 20

On an average day, Plastics Enterprises writes 42 checks with an average amount of $587. These checks clear the bank in an average of 2 days. What is the average amount of the disbursement float?

Accepted Answer

A)  $1,174
B)  $5,805
C)  $24,654
D)  $49,308
E)  $73,962F) A) and E)
G) C) and D)

Exam 19: Cash and Liquidity Management

Correct Answer
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The Blue Star generally receives only 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 every month has 30 days.

Correct Answer
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Adjustment costs is another name for which one of the following?

Correct Answer
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The BAT model is used to:

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A cash concentration account:

Correct Answer
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Correct Answer
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Paper Submarine Manufacturing is investigating a lockbox system to reduce its collection time. It has determined the following: The total collection time will be reduced by 2 days if the lockbox system is adopted. What is the NPV of adopting the lockbox system?

Correct Answer
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Purple Feet Wine, Inc. receives an average of $6,000 in checks per day. The delay in clearing is typically 3 days. The current interest rate is 0.025 percent per day. Assume 30 days per month. What is the highest daily fee the company should be willing to pay to eliminate its float entirely?

Correct Answer
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Correct Answer
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Which one of the following statements is correct?

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 variables are included in the BAT model? I. upper cash limit II. interest rate on marketable securities III. opportunity cost of holding cash IV. fixed cost of each securities trade

Correct Answer
verified

On an average day, Plastics Enterprises writes 42 checks with an average amount of $587. These checks clear the bank in an average of 2 days. What is the average amount of the disbursement float?

Correct Answer
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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.

Correct Answer
verified

Correct Answer
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Exam 19: Cash and Liquidity Management

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Blue Star generally receives only 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 every month has 30 days.

Correct AnswerverifiedShow Answer

Adjustment costs is another name for which one of the following?

Correct AnswerverifiedShow Answer

The BAT model is used to:

Correct AnswerverifiedShow Answer

A cash concentration account:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Paper Submarine Manufacturing is investigating a lockbox system to reduce its collection time. It has determined the following: The total collection time will be reduced by 2 days if the lockbox system is adopted. What is the NPV of adopting the lockbox system?

Correct AnswerverifiedShow Answer

Purple Feet Wine, Inc. receives an average of $6,000 in checks per day. The delay in clearing is typically 3 days. The current interest rate is 0.025 percent per day. Assume 30 days per month. What is the highest daily fee the company should be willing to pay to eliminate its float entirely?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

The Miller-Orr model assumes that:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following variables are included in the BAT model? I. upper cash limit II. interest rate on marketable securities III. opportunity cost of holding cash IV. fixed cost of each securities trade

Correct AnswerverifiedShow Answer

On an average day, Plastics Enterprises writes 42 checks with an average amount of $587. These checks clear the bank in an average of 2 days. What is the average amount of the disbursement float?

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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