Exam 21: Cash and Inventory Management

The Green Transfer Co.utilizes a concentration banking system and is determining whether to request wire transfers or depository transfer cheques.What would you suggest, given the following: wire transfer saves three days of float but increases costs by $45.The current interest rate is 10 percent annually.Next year, however, technological changes will occur that reduce the float savings to two days from three, and the incremental costs will be reduced to $35.

Calculate the EOQ given the following information: Annulal Bales \ 1,000,000 Cost per order \ 45 Carrying Cost \ 0.10

What is the economic order quantity for firm that sells 30,000 units annually, each unit has a $6 carrying cost, and the fixed cost of placing an order is $100?

In the Baumol model, increases in the T-bill rate suggest that:

A manager estimates that her firm benefits from an average float time of six days.Which of the following is true if the firm averages $15,000 per day in payments?

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 450 Average value of payment Rate of interest per day 0.015\% Savings in mailing time (days) 1.1 Savings in processing time (days) 0.6 Bark charge per cheque

The economic order quantity does not account for delivery lags in its reorder points.

Suppose you have weekly cash expenses of $150.The bank charges $0.25 every time cash is withdrawn.The bank pays 1.5% interest per year.Given this information, what is the optimal withdrawal size? What is the average amount of cash on hand? How often should you withdraw funds?

With rates of return so low on money market instruments, does it actually benefit a firm to pay close attention to cash balances?

Which of the following statements is not true?

A corporation has excess cash that does not appear to be needed for several months.How can they evaluate the differences between parking their funds in commercial paper versus repurchase agreements?

Which of the following represents a serious concern for those firms employing the Baumol model of cash management?

What are the expected annual savings from a lock-box system that collects 150 cheques per day averaging $500 each, and reduces mailing and processing times by 2.5 and 1.5 days respectively, if the annual interest rate is 7 percent?

A system by which firms assign their customers for collection purposes to regional banks that transfer funds to a central bank is known as:

Suppose you have weekly cash expenses of $400.The bank charges $0.4 every time cash is withdrawn.The bank pays 1% interest per year.Given this information, what is the optimal withdrawal size? What is the average amount of cash on hand? How often should you withdraw funds?

If there is an increase in interest rates, a firm which uses Baumol's model should reduce the funds held in cash and reduce the holding of interest-bearing securities.

The cost of holding inventory is the interest paid on the money used to buy the inventory.

Which of the following is correct for a firm that places orders for an item in amounts greater than the economic order quantity?

The economic order quantity for a product is 500 units.However, new orders require five working-days lead time during which time 60 units will be used.Given this information, the correct economic order quantity is:

A lockbox service will benefit the following firm the most.