Question 1

Your firm spends $48,000 a week to pay bills and maintains a lower cash balance limit of $50,000. The standard deviation of the disbursements is $8,600. The applicable weekly interest rate is 0.054 percent and the fixed cost of transferring funds is $65. What is your cash balance target based on the Miller-Orr model?

Accepted Answer

A)  $48,156
B)  $49,990
C)  $54,884
D)  $68,830
E)  $75,726F) B) and C)
G) A) and C)

Question 2

The Hobby Shop has a checking account with a ledger balance of $692. The firm has $1,063 in uncollected deposits and $846 in outstanding checks. What is the amount of the disbursement float on this account?

Accepted Answer

A)  $0
B)  $217
C)  $846
D)  $909
E)  $1,063F) A) and D)
G) B) and E)

Question 3

Check kiting is:

Accepted Answer

A)  used by most firms as an ethical means of handling its cash reserves.
B)  the process of withdrawing all funds from a bank account as soon as the funds are available.
C)  the central core of a good cash management system.
D)  using uncollected cash to invest in short-term, liquid assets.
E)  increasingly popular due to recent banking law changes.F) A) and E)
G) All of the above

Question 4

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

Question 5

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.

Accepted Answer

A)  lockbox
B)  concentration
C)  zero-balance
D)  compensating balance
E)  revolvingF) All of the above
G) A) and C)

Question 6

A lockbox system:

Accepted Answer

A)  entails the use of a bank which is centrally located to collect payments on a nationwide basis.
B)  is designed to deposit a customer's check into the firm's bank account prior to recording the receipt of that check to a customer's account.
C)  is used to reduce the disbursement float of a firm.
D)  is efficient regardless of the locations selected for lockbox destinations.
E)  automatically records payments to a customer's account when the customer's check is received at the lockbox location.F) B) and C)
G) C) and E)

Question 7

When Chris balanced her business checkbook, she had an adjusted bank balance of $11,418. She had 2 outstanding deposits worth $879 each and 11 checks outstanding with a total value of $3,648. What is the amount of the collection float on this account?

Accepted Answer

A)  -$1,890
B)  $1,758
C)  $3,648
D)  $5,406
E)  $6,012F) B) and C)
G) B) and E)

Question 8

An account into which a firm transfers funds, usually from a master account, in an amount sufficient to cover the checks presented for payment that day is called a _____ account.

Accepted Answer

A)  lockbox
B)  cleanup
C)  compensating balance
D)  revolving
E)  controlled disbursementF) A) and B)
G) B) and E)

Question 9

Which one of the following collection times is correctly described?

Accepted Answer

A)  The processing delay starts when a firm mails out a billing statement and ends when the payment is received from a customer.
B)  Mailing time begins when a firm mails out a billing statement and ends when the payment is received.
C)  Collection time begins when a firm mails out a billing statement and ends when the cash payment for that billing is available to the firm.
D)  Availability delay begins when a firm deposits a customer's check into its bank account and ends when the cash from that payment is available to the firm.
E)  Processing delay begins when a firm mails out billing statements and ends when the firm deposits the payment for that statement into its bank account.F) A) and E)
G) All of the above

Question 10

Your firm has an average receipt size of $60. A bank has approached you concerning a lockbox service that will decrease your total collection time by 1 day. You typically receive 28,000 checks per day. The daily interest rate is 0.016 percent. What is the NPV of the lockbox project if the bank charges a fee of $210 per day?

Accepted Answer

A)  $367,500
B)  $427,500
C)  $903,350
D)  $1,412,500
E)  $1,680,000F) C) and D)
G) A) and D)

Question 11

On an average day, Goose Down Feathers receives $2,400 in checks from customers. These checks clear the bank in an average of 1.7 days. The applicable daily interest rate is 0.04 percent. What is the present value of the float? Assume each month has 30 days.

Accepted Answer

A)  $115.20
B)  $618.40
C)  $2,400.00
D)  $4,080.00
E)  $4,256.50F) C) and D)
G) A) and C)

Question 12

A jumbo CD:

Accepted Answer

A)  is issued by the federal government.
B)  generally matures between 2 and 5 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) D) and E)

Question 13

Explain what a zero-balance account is, how it is used, and how it affects cash management.

Accepted Answer

A zero-balance account is a checking acc...

Question 14

Explain how the Check Clearing Act for the 21st Century affects both collection and disbursement float.

Accepted Answer

Check 21 eliminated the need to present ...

Question 15

A lockbox is a:

Accepted Answer

A)  special safe used by a firm for overnight storage of any cash or undeposited checks.
B)  special safe used by a firm that can only be opened at prespecified times of the day.
C)  box located in a bank's vault that is rented by a firm and used to hold unprocessed checks.
D)  special post office box which can only be opened by prespecified postal inspectors for direct delivery to the addressee.
E)  post office box strategically located so that a firm's receivables can be collected faster.F) B) and E)
G) A) and E)

Question 16

Which of the following should help reduce the total collection time for a firm?
I. opening a post office box so mail can be received earlier in the morning
II. assigning additional staff in the morning to process incoming payments
III. providing a discount for customers who pay electronically
IV. establishing preauthorized payments from customers

Accepted Answer

A)  I and II only
B)  III and IV only
C)  II, III, and IV only
D)  I, II, and IV only
E)  I, II, III, and IVF) A) and B)
G) None of the above

Question 17

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

Question 18

On average, your firm receives 62 checks a day from customers. These checks, on average, are worth $39.90 each and clear the bank in 1.5 days. In addition, your firm disburses 38 checks a day with an average amount of $89.50. These checks clear your bank in 2 days. What is the average amount of the collection float?

Accepted Answer

A)  $2,473.80
B)  $3,401.00
C)  $3,710.70
D)  $5,101.50
E)  $6,802.00F) All of the above
G) A) and E)

Question 19

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 10 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.?

Accepted Answer

A)  56
B)  67
C)  74
D)  83
E)  89F) None of the above
G) C) and E)

Question 20

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 which collects the checks from the lockbox is responsible for recording the payment on the customer's account.
C)  Payments received in a lockbox are transferred immediately to the concentration account.
D)  The firm's cash manager determines how the funds in the concentration account are disbursed.
E)  The concentration account must be zeroed out on a daily basis.F) A) and D)
G) B) and C)

Exam 19: Cash and Liquidity Management

A lockbox is a:

Correct Answer
verified

On an average day, Goose Down Feathers receives $2,400 in checks from customers. These checks clear the bank in an average of 1.7 days. The applicable daily interest rate is 0.04 percent. What is the present value of the float? Assume each month has 30 days.

Correct Answer
verified

Which one of the following statements is correct?

Correct Answer
verified

Correct Answer
verified

A lockbox system:

Correct Answer
verified

The Hobby Shop has a checking account with a ledger balance of $692. The firm has $1,063 in uncollected deposits and $846 in outstanding checks. What is the amount of the disbursement float on this account?

Correct Answer
verified

Correct Answer
verified

Check kiting is:

Correct Answer
verified

An account into which a firm transfers funds, usually from a master account, in an amount sufficient to cover the checks presented for payment that day is called a _____ account.

Correct Answer
verified

Municipal bonds:

Correct Answer
verified

When Chris balanced her business checkbook, she had an adjusted bank balance of $11,418. She had 2 outstanding deposits worth $879 each and 11 checks outstanding with a total value of $3,648. What is the amount of the collection float on this account?

Correct Answer
verified

Correct Answer
verified

Which one of the following collection times is correctly described?

Correct Answer
verified

A jumbo CD:

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

Explain how the Check Clearing Act for the 21^st Century affects both collection and disbursement float.

Correct Answer
verified
Check 21 eliminated the need to present ...
View Answer

Correct Answer
verified

Correct Answer
verified

Explain what a zero-balance account is, how it is used, and how it affects cash management.

Correct Answer
verified
A zero-balance account is a checking acc...
View Answer

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.

Correct Answer
verified

Exam 19: Cash and Liquidity Management

A lockbox is a:

Correct AnswerverifiedShow Answer

On an average day, Goose Down Feathers receives $2,400 in checks from customers. These checks clear the bank in an average of 1.7 days. The applicable daily interest rate is 0.04 percent. What is the present value of the float? Assume each month has 30 days.

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A lockbox system:

Correct AnswerverifiedShow Answer

The Hobby Shop has a checking account with a ledger balance of $692. The firm has $1,063 in uncollected deposits and $846 in outstanding checks. What is the amount of the disbursement float on this account?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Check kiting is:

Correct AnswerverifiedShow Answer

An account into which a firm transfers funds, usually from a master account, in an amount sufficient to cover the checks presented for payment that day is called a _____ account.

Correct AnswerverifiedShow Answer

Municipal bonds:

Correct AnswerverifiedShow Answer

When Chris balanced her business checkbook, she had an adjusted bank balance of $11,418. She had 2 outstanding deposits worth $879 each and 11 checks outstanding with a total value of $3,648. What is the amount of the collection float on this account?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following collection times is correctly described?

Correct AnswerverifiedShow Answer

A jumbo CD:

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

Explain how the Check Clearing Act for the 21st Century affects both collection and disbursement float.

Correct AnswerverifiedCheck 21 eliminated the need to present ...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Explain what a zero-balance account is, how it is used, and how it affects cash management.

Correct AnswerverifiedA zero-balance account is a checking acc...View AnswerShow Answer

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.

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

Explain how the Check Clearing Act for the 21^st Century affects both collection and disbursement float.

Correct Answer
verified
Check 21 eliminated the need to present ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A zero-balance account is a checking acc...
View Answer

Correct Answer
verified