Exam 17: Cash,receivables,and Inventory Management

Transaction balances are used to meet the regular cash needs of the firm,not irregular outflows that will be handled with speculative balances.

Flashbinder Guitars,Inc.is considering a lockbox system that will increase its check processing cost by $.15 per check.The company estimates an average check size of $1,700 and expects the lockbox to reduce check collection time by 3 days.What annual before-tax yield must Flashbinder Guitars,Inc.earn on its marketable securities for the lockbox system to be beneficial?

Payable-through drafts look like checks but are not drawn on a bank.

Firms like to hold large stocks of cash since the risk of becoming insolvent is minimized.

The minimum denomination of U.S.Treasury bills is $100,000.

Brett's,Inc.expects to have $35 million in credit sales during the coming year.In spite of a national distributing system,all remittances are sent to the home office.A proposed system can eliminate 3 days of float,releasing funds which,when invested,will earn 6.5 percent.What annual savings can Brett's,Inc.expect if the system is implemented? Use a 365-day year.

The EOQ model calculates the size of the firm's inventory given its expected usage,carrying costs,and ordering costs.

Which of the following is the least liquid?

A lock-box system reduces

Managing a firm's cash outflows through use of a "zero balance account" system offers all but which of the following benefits?

All of the following elements of a cash management program will likely contribute to an increase in the value of the firm EXCEPT

Which of the following has the least interest rate risk?

If you compare the yield of a municipal bond with that of a negotiable certificate of deposit,what is the equivalent before-tax yield of the certificate of deposit if the municipal bond has a yield of 8% per year and the investor has a marginal tax rate of 28%?

What are the three motives for holding cash?

Available yields on financial securities depend on their financial risk,interest rate risk,liquidity,and taxability.

Which of the following has the highest interest rate risk?

Speculative cash balances are held to take advantage of uncertain profit-making opportunities.

Howton Mining expects to have credit sales of $8,000,000 this year.First National Bank is offering Howton Mining a lock-box system for $1,200 per month.Howton Mining estimates that the new lock-box system will reduce float by 4.5 days.What rate of return must Howton Mining earn on its marketable securities to make it worthwhile for the company to institute this lock-box system? Use a 365-day year.

The economic order quantity (EOQ)model is well accepted.However,there are weaknesses associated with several of its assumptions.What are these weaknesses?

In the basic EOQ model,the optimal inventory level is the point at which