Exam 21: Cash and Inventory Management

If cash flows change unpredictably, then management should allow the cash balance to move within limits.What three factors determine how far apart these limits? How far should the firm adjust its cash balance when it reaches this upper or lower limit?

Repos are long-term unsecured loan agreements.

What approximate value should a firm put on being able to permanently reduce the length of its collection period by one day if annual sales (all on credit) are $5,000,000 and the appropriate opportunity cost is 10 percent annually?

What are some tactics to increase net float?

Shamba Corporation writes cheques that average $90,000 and take on average 5 days to clear.Cheques are received with an average value of $45,000 and take 9 days to clear.Determine the net float.

What is the opportunity cost of keeping a cash balance of $2.5 million, if the daily interest rate is 0.025 percent and the average transaction cost of investing money overnight is $50?

How much time must be saved to justify a lock-box system that processes 350 cheques per day at an average amount of $400 per cheque if the system will cost $20,000 annually and interest rates average 8 percent?

Money market securities usually have a maturity of:

Which of the following would not be considered a money market instrument?

One way of handling uncertain cash flows is to set an upper and lower limit for cash balances and a return point to which the cash balance is brought to when the upper or lower limit is reached.

How many cases of microwave popcorn are sold annually by a firm which has total annual order costs of $32,000, orders in units of 100 cases, and is charged $90 per order in addition to the $72 per case product cost?

Penny Pinchers Inc.is attempting to implement a Baumol model for cash management.Given that Treasury bills offer a 7.5 percent return, that each sale of bills involves a fixed cost of $30, and that Pinchers disburses $6.5 million annually, determine the optimum amount of bills to sell each time.What will be the average cash balance under these assumptions?

Your cash manager is currently using wire transfer to obtain collections from distant locations each time that the cash accumulates to $50,000.Evaluate the financial logic of this policy if the wire transfer costs $20, saves three days of mail time, and interest rates average 7 percent annually.

The Quick Corp.has implemented procedures to cut 1.5 days from their cash collection process.Annual sales (all charge sales) are $30 million and the opportunity cost of funds is 9 percent.What is the value of the annual savings, and how much would the savings be worth if the speed-up in collections can be considered permanent?

If the volatility of the daily cash flows decreases, a firm will:

Recent interest rate increases have increased the cost of carrying the inventory.What will be the effect of this on EOQ, if the sales and order costs remain the same?

Discuss the distinction of playing the float versus cheque kiting.

Which of the following would not be included in inventory carrying cost?

Calculate the payment float given the following information: Data: Company ledger balance 770,000 Bank' s ledger balance 860,000 Available balance 790,000

Micro expects to sell 8,000 microwaves this year.The cost of placing an order is $150 per order, while the carrying cost per unit is $5.50.Given this information, calculate the company's EOQ, carrying cost, ordering cost and total cost.