Exam 17: The Management of Cash and Marketable Securities

________________________ relationship exists between a firm's liquid asset balance and shortage costs.

The difference between the firm's checking account balance shown on the books of the bank and the account balance shown on its own books is known as

Liquid asset balances include all of the following except

MLX has annual sales of $320 million per year and has calculated that the collection float is 12 days. If MLX is currently paying 9.35 percent on its line of credit, what amount of interest expense could be saved if the collection float is reduced by 3 days? Assume 365 days per year.

____, which are similar to other checks except they are not payable on demand, are used primarily to provide for centralized control over payments authorized in field offices.

Tangible services provided by a firm's bank are all of the following EXCEPT:

The costs of a lockbox collection system include

A reason that banks would maintain a bank balance exceeding the compensating balance requirements is:

Osborne Shipbuilding Company, located in Baton Rouge, receives large remittances from its customers in New York and California. If the firm deposits these checks in its local bank, two business days are required for the checks to clear and the funds to become usable by the firm. However, if Osborne sends an employee to New York or California and presents the check for payment at the bank upon which it is drawn, the funds are available immediately to the firm. The firm can earn 8% per annum on short-term investments and the cost of sending an employee to New York or California to present the check for payment is $500. What is the net benefit to the firm of employing this special handling technique for a $5 million check received on Tuesday (assume 365 days per year)?

The objective of cash collection and disbursement policies is to

Which of the following statements concerning auction rate money market preferred stocks is (are) true?

Which of the following types of marketable securities is considered to have the lowest default risk?

Which of the following is/are the most liquid of a company's assets? I. Inventory II. Accounts Receivable

All of the following are cash management strategies to expedite collections except

____ consists of short-term unsecured promissory notes issued by large, well-known corporations and finance companies.

Currently Nemonix is using a decentralized collection system whereby customers mail their checks to one of the firm's eight regional locations. Its annual sales are $95 million. Checks are deposited each business day in a local bank and the amount of the deposit is sent to the firm's concentration bank in Dallas. The average time between deposit in the local bank and the availability of those funds, in Dallas, to Nemonix is 6 days. Nemonix has determined that the use of wire transfers would reduce the float by four days, but the transfer will cost $7.50. If transfers will be made on the 250 days that banks are open each year, should Nemonix switch to the wire transfer system? Assume that Nemonix can earn 8% on the funds released through this more efficient transfer.

Jester, Inc. has annual sales of $434 million. An average of 12 days elapses between the time a customer mails its payment and the funds are available to Jester. What is the increase in the average cash balance if the use of a lock box system is believed to reduce the collection time by 4 days?

Which of the following statements concerning drafts is (are) correct?

Fagins, a nationwide department store chain, currently processes all of its credit sales payments at its St. Louis headquarters. The firm is considering the establishment of a lockbox arrangement with a Los Angeles bank to process payments from its customers in 10 western states. Average mailing time for customers from this region would be reduced from 3 days to 1.5 days. In addition, check processing and clearing time would be reduced from 4 days to 2.5 days. Annual collections from the western region are $150 million. Establishment of this lockbox system would reduce the compensating balance requirement at the firm's St. Louis bank by $600,000 and reduce annual payment processing costs at the St. Louis office by $30,000. Funds released by the lockbox arrangement can be invested elsewhere in the firm to earn 12 percent. The Los Angeles bank has agreed to process Fagins' customer payments "free of charge" provided that the firm maintains a minimum compensating balance of $1,500,000 in its account at the bank. What are the annual net benefits to Fagins of establishing a lockbox system with the Los Angeles bank (assume 365 days per year)?

The fastest method for moving funds between banks is