Exam 19: Cash and Liquidity Management

On an average day, Towne Hardware receives $3,028 in checks from customers. These checks clear the bank in an average of 1.84 days. The applicable daily interest rate is .021 percent. What is the maximum amount this store should pay to completely eliminate its collection float? Assume each month has 30 days.

The BAT model:

The Tire Shop spends $47,200 a week to pay bills and maintains a lower cash balance limit of $12,000. The standard deviation of the disbursements is $3,800. The applicable weekly interest rate is .047 percent and the fixed cost of transferring funds is $49. What is the cash balance target based on the Miller-Orr model?

Which one of the following will increase collection time?

The Cow Pie Spreader Co. spends $238,700 a week to pay bills and maintains a lower cash balance limit of $67,000. The standard deviation of the disbursements is $22,400. The applicable weekly interest rate is 0.052 percent and the fixed cost of transferring funds is $46. What is the target cash balance based on the Miller-Orr model?

Which of the following costs related to holding cash are minimized when the level of cash held is optimized?

The BAT model:

The Burger Stop spends $36,800 a week to pay bills and maintains a lower cash balance limit of $15,000. The standard deviation of the disbursements is $5,400. The applicable weekly interest rate is .046 percent and the fixed cost of transferring funds is $55. What is the optimal average cash balance based on the Miller-Orr model?

A lockbox is a:

Donaldson Inc. spends $87,000 a week to pay bills and maintains a lower cash balance limit of $40,000. The standard deviation of the disbursements is $12,900. The applicable weekly interest rate is .042 percent and the fixed cost of transferring funds is $57. What is your optimal average cash balance based on the Miller-Orr model?

On an average day, WW Co. receives $329,418 in checks from customers. These checks clear the bank in an average of 1.46 days. The applicable daily interest rate is .019 percent. What is the highest daily fee that should be paid to completely eliminate the collection float? Assume each month has 30 days.

Disbursements float:

High Brow Express deals strictly with two customers. The payment from Customer A averages $537,400 and has a collection delay of three days. Customer B's average payment is $737,500 and has a one-day delay. What is the weighted average delay assuming every month has 30 days?

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

The Moon Hotel spends $157,300 a week to pay bills and maintains a lower cash balance limit of $50,000. The standard deviation of the disbursements is $11,307. The applicable weekly interest rate is 0.043 percent and the fixed cost of transferring funds is $44. What is the optimal upper cash limit based on the Miller-Orr model?

Theo's Bar & Grill needs $49,500 a week to pay bills and has established a lower cash balance limit of $40,000. The applicable interest rate is 3.26 percent and the fixed cost of transferring funds is $41. Based on the BAT model, what is the optimal average cash balance?

Which of the following statements is correct?

Assume a check for $127,000 has a collection delay of 1.8 days while a check for $218,900 has a collection delay of 1.5 days. If these are the only two checks received in a 30-day period, what is the weighted average delay?

Brown Trucking is buying a U.S. Treasury bill today with the understanding that the seller will buy it back tomorrow at a slightly higher price. This investment is known as a:

Which of the following variables are included in the BAT model?