Exam 19: Cash and Liquidity Management

AJ's spends $327,800 a week to pay bills and maintains a lower cash balance limit of $50,000. The standard deviation of its disbursements is $36,900. The applicable interest rate is 3.48 percent and the fixed cost of transferring funds is $58. What is the optimal average cash balance based on the BAT model?

Penco Supply spends $319,600 a week to pay bills and maintains a lower cash balance limit of $65,000. The standard deviation of its disbursements is $12,900. The applicable interest rate is 3.26 percent and the fixed cost of transferring funds is $43. What is the optimal initial cash balance based on the BAT model?

Which two of the following are key reasons why companies temporarily accumulate large cash surpluses?

Assume Wilt, Inc. owns 15,000 shares of preferred stock in Dallas Enterprises, Inc. If Dallas Enterprises issues a preferred stock cash dividend of $1.20 per share, what amount per share, if any, is taxable income to Wilt Distributors?

As it applies to the BAT model, opportunity costs are defined as:

Check kiting, or systematically overdrawing accounts, is:

Lake Side spends $22,406 a week to pay bills and maintains a lower cash balance limit of $15,000. The standard deviation of disbursements is $1,300. The applicable interest rate is 3.46 percent and the fixed cost of transferring funds is $38. What is the opportunity cost of holding cash based on the BAT model?

It takes your staff 1.5 days to prepare and mail out all the monthly customer statements. On average, the mail time between your office and your customers is 3.3 days. Customer checks take an average of 1.2 days to clear the bank. You have determined that your total average collection time is 6.3 days. How long, on average, does it take your staff to process the payments from customers?

Cash concentration accounts:

Parkway Express needs $172,540 a week to pay bills. The standard deviation of the weekly disbursements is $8,600. The applicable interest rate is 3.72 percent and the fixed cost of transferring funds is $38. Based on the BAT model, what is the opportunity cost of holding cash?

GT Motors regularly issues short-term debt to finance its daily operations. However, the credit markets suddenly tightened and GT is unable to sell debt at this time. Fortunately, they have some cash reserves that they can use to fund operations until additional credit becomes available. The need to retain cash for situations such as this represents which one of the following motives for holding cash?

Which one of the following enabled checks to be paid electronically using an electronic image?

Collection float:

Cash management primarily involves:

Which one of the following statements is correct?

A zero-balance account:

Buster's needs $168,000 a week to pay bills and has established a lower cash balance limit of $75,000. The applicable interest rate is 3.17 percent and the fixed cost of transferring funds is $34. Based on the BAT model, what is the optimal initial cash balance?

The Snow Hut has analyzed the carrying and shortage costs associated with its cash holdings and determined they should ideally maintain a cash balance of $5,200. This $5,200 represents which one of the following?

Money market securities generally have which of the following characteristics?

Mountain top Inc. can reduce its collection time by one day if it installs a lockbox system at a cost of $2,200 a year plus $.52 per transaction. The inn receives an average of 136 payments per day with an average payment of $7,980 each. The interest rate on money market securities is 3.98 percent. Assume a year has 365 days. What is the NPV of the lockbox system?