Exam 19: Cash and Liquidity Management

On an average day, GDF Corp. receives $7,218 in checks from customers. These checks clear the bank in an average of 1.6 days. The applicable daily interest rate is .028 percent. What is the present value of eliminating the float? Assume each month has 30 days.

B&C Co. has an average receipt size of $249. A lockbox service should decrease the average total collection time by 1.6 days at a cost of $95 per day. The company typically receives 2,150 checks per day. The daily Treasury interest rate is .012 percent. What is the NPV of the lockbox project?

If Merilee Industries installs a lockbox system it should reduce its average collection time by 2.2 days at a cost of $.75 per check. On an average day, 594 checks with an average value of $4,618 each are received. The daily interest rate on Treasury bills is .009 percent. What is the net present value of this lockbox arrangement?

When Chris balanced her business check book, she had an adjusted bank balance of $8,911. She had three outstanding deposits worth $349 each and seven checks outstanding with a total value of $948. What is the amount of the collection float on this account?

On average, LB Inc. receives 138 payments each day with an average value of $42 each. These payments clear the bank in an average of 1.3 days. In addition, it disburses 2.2 checks a day with an average amount of $2,250. These checks clear the bank in two days. What is the average amount of the collection float?

International Shoppes receives an average of 418 checks a day with an average amount per check of $607. A lockbox system is expected to reduce the average collection time by 2.3 days. The daily interest rate on Treasury bills is .011 percent. What is the maximum cost per check that can be charged for the company to break-even on the lockbox system?

Each business day, on average, a company writes checks totalling $41,627 to pay its suppliers. The usual clearing time for these checks is 3.2 days. Meanwhile, the company is receiving payments from its customers each day, in the form of checks, totalling $59,948. The cash from the payments is available after 1.5 days. What is the amount of the average net float?

Roger's Distributors receives an average of 82 checks a day with an average check amount of $16,329. If a lockbox system is implemented the average collection time should decrease by an average of 1.7 days. The daily interest rate on Treasury bills is .009 percent. What is the amount of the expected daily savings of the lockbox system?

Lockboxes:

The Research Center has branch operations in three states. Each branch deals with a local bank. However, all excess funds in these branch bank accounts are transferred on a daily basis to the company's primary bank located near the home office. This routine of transferring cash to the primary bank on a regular basis is referred to as:

A cash concentration account:

Which one of these statements is correct?

Hot Tub Builders sells to three retail dealers under an agreement wherein each dealer pays monthly. The average payments are $148,500, $162,900, and $74,500 from these dealers. Each payment has a collection delay of 1.5 days. What is the amount of the average daily receipts assuming each month has 30 days?

Your average customer is located 2.9 mailing days away from your office. On average, it takes your staff 1.1 days to process incoming payments and an average of .65 days for your funds to be available for use once you have made your bank deposit. What is your total collection time if 98 percent of your customers pay by mail while the others drop their payment off at your office?

Financial electronic data interchange (FEDI):

Lasko's Mart has an available balance of $2,315. A deposit of $789 was made this morning and is included in the bank's balance. There are three checks outstanding with a value of $289 each. What is the net float?

Freedom Wine receives an average of $684,006 in checks per day. The delay in clearing is typically 1.3 days. The current interest rate is .024 percent per day. Assume each month has 30 days. What is the highest daily fee the company should be willing to pay to eliminate its float entirely?

Cow Chips Inc. can install a lockbox system to speed up collections by two days for an annual fee of $17,000 plus 21 cents per transaction. The average customer payment is $11,480. Treasury bills are currently yielding 3.5 percent per year. Assume a year has 365 days. Approximately how many customers each day, on average, are needed to make this installation profitable for Cow Chips?

Specialty Co. deals strictly with three customers who pay monthly amounts of $340,800, $262,900, and $81,300. The $81,300 payment has a collection delay of 2.5 days while the other two have a delay of 1.5 days. What is the weighted average delay assuming each month has 30 days?

RB Enterprises (RBE) received an unexpected phone call from a competitor offering all of its assets to RBE at a bargain basement price. While RBE had not anticipated purchasing these assets, the opportunity was too good to pass up. This illustrates which one of the following needs to hold cash?