Exam 21: Cash and Inventory Management

ABC Corp.disburses $4 million annually and keeps idle funds in Treasury bills which earn an average of 5 percent and incur a fixed cost of $35 each time a cash conversion is made.What is the average amount of cash that ABC Corp.should have on hand?

The Canine Kennel uses 600 cases of dog food annually and orders 40 cases in each shipment.If the annual carrying cost per case (due to opportunity costs and extremely large dogs) is $5, what is the total annual carrying cost for dog food?

You are considering opening a lockbox.Calculate the net benefit of the lockbox per day given the information provided. Data: Average number of daily payments to lockbox 150 Average value of payment \ 1,200 Rate of interest per day 0.02\% Savings in mailing time (days) 1.2 Savings in processing time (days) 0.8 Bark charge per cheque \ 0.26

The annual cash requirement for a firm is $1,000,000.The cost for each security transaction is $20 and current short-term return is 5 percent.Using Baumol's model estimate the initial cash balance.

Concentration banking allows the banks to use the local collection system to clear the customers' cheques.

Short-term securities have high interest-rate risk.

Which of the following is correct about wire transfer of funds, given that wire transfer saves three days, the annual interest rate is 6 percent, and the cost of wire transfer is $20?

In addition to the domestic money market, there is also an international market for short-term dollar investments, which is known as the ______ market.

Calculate the payment float, availability float, net float, available balance, and the firm's ledger balance, given the following recent transactions: Deposit of $65,000. Cheques mailed totaling $38,000. Deposit of $15,000.

Which of the following conditions would make a lockbox system potentially more attractive to a firm?

A firm using Baumol's model will do one of the following if the interest rate on short-term securities went up.

Thrifty Corp.is establishing a lock-box system to reduce time in the collection process.They anticipate saving two days of mail time and.75 days of processing time through the system.Six hundred payments are expected to be collected daily, at an average size of $200.The appropriate interest rate is 6 percent per year.What is the break-even charge per item that you could consider paying to a bank for providing this service?

Which of the following statements is correct for a firm that currently has total costs of carrying and ordering inventory that is 50 percent higher than total carrying costs?

While many firms may hold too much cash, it is virtually impossible to hold too little cash.

What are the minimum total costs of carrying and ordering inventory for a firm that sells 1,500 units with a carrying cost of $2 per unit and places orders in lots of 100?

A primary purpose of restricting the investment of idle cash balances to money market instruments is to:

Baumol's model is not very useful in practical applications, because it does not allow for uncertain cash flows.

How much value would be added to a firm that could permanently reduce its collection period by two days if daily collections average $10,000 and the opportunity cost is 5 percent annually?

ABC Corp.shows a ledger balance of $50,000 prior to writing a cheque for $5,000 and depositing $1,000 in cheques.What is the amount of their net float?

An East Coast firm should establish a lock-box service on the West Coast: