Exam 19: Cash and Liquidity Management

Atlas Builders deals strictly with five customers. The average amounts these customers pay per month are $17,400, $15,900, $22,500, $57,800, and $64,300. The smaller two payments have a collection delay of three days while the others only have a one-day delay. Assume each month has 30 days. What is the amount of the average daily receipts?

Which one of the following statements is correct?

Paper Mfg. is investigating a lockbox system that would reduce its collection time by two days at a cost of $.42 per transaction. The company receives an average of 498 payments per day with an average value of $1,687 each. The Treasury daily interest rate is .012 percent. What is the NPV of adopting the lockbox system?

A repurchase agreement generally has a maximum life of:

A mail-order company processes 8,200 checks per month. Of these, 64 percent are for $39 while the remainder are for $69. The $39 checks have a collection delay of 2.1 days on average while the $69 checks are delayed 1.8 days on average. Assume each month has 30 days. The interest rate is 5.2 percent per year. What is the maximum amount that should be paid to reduce the weighted average float to 1.5 days?

Turkey Farms disburses checks every four weeks that have an average total of $68,900 each which take 3.4 days to clear. How much interest can the company earn annually if it delays transfer of funds from an interest-bearing account that pays .014 percent per day while the payments clear? Ignore the effects of compound interest. Assume each year has exactly 52 weeks.

Which one of the following statements is correct concerning a cash management system that employs both lockboxes and a concentration bank account?

Hoyes Lumber generally receives three checks a month in the amounts of $654, $987, and $1,310. The $987 check has a two-day collection delay while the others have a one-day delay. Given this information, what is the amount of the average daily float? Assume each month has 30 days.

Money market securities:

The cash used to make change when customers pay for their purchases in cash is an example of the ________ motive for holding cash.

Currently, it requires two days to process the checks received in the mail from your customers. The average mail time is 2.7 days and the check clearing time is .97 days. If you adopt a lockbox system, the mail time will be cut in half. In addition, if employees are reassigned, checks could be processed in one day. How long will your collection time be if both the lockbox system and the job reassignments are implemented?

Beasley Enterprises has an agreement with Downtown Bank whereby the bank handles $1.02 million in collections a day and requires a $750,000 compensating balance. Beasley is contemplating cancelling the agreement and dividing its eastern region so that two other banks would handle its business. Banks A and B would each handle $.51 million of collections per day and each requires a compensating balance of $400,000. Collections should be accelerated by one day if the eastern region is divided. The T-bill rate is 2.97 percent annually. What is the amount of the annual net savings if this plan is adopted?

Cross Trucking provides services exclusively for three customers. The monthly amounts paid by these customers along with their respective collection delays are: $81,900 with 1.5 days, $47,300 with 2 days, and $68,400 with 2.5 days. Given this information, what is the weighted average delay?

Southern Meals generally receives four checks a month. One of the checks is for $569 and has a collection delay of three days. The others amounts are $1,318, $907, and $113 and have a one-day delay. Given this information, what is the amount of the average daily float? Assume each month has 30 days.

Which one of the following collection times is correctly described?

Wilson Publishers is considering implementing a lockbox system that is expected to reduce average collection time by 2.5 days. On an average day, the company receives 1,327 checks with an average value of $49 each. The daily interest rate on Treasury bills is .011 percent. What is the anticipated amount of the daily savings if this system is implemented?

Which two of the following require liquidity but do not necessarily require cash reserves?

A jumbo CD:

The Miller-Orr model assumes that:

A lockbox system: