Exam 21: Mergers, Acquisitions, and Corporate Control

Your firm's ledger shows a balance of $1 million which reflects today's $75,000 deposit and a cheque for $50,000 that went out in yesterday's mail.What is the bank's ledger balance for your account?

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

Which of the following is true regarding the cash management model in Figure 20.5?

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?

Which type of float would be least important to the payer of the funds?

When firms select banks and write cheques in a manner exclusively intended to create float they are:

What are the cost and benefits of holding cash?

Which of the following statements is correct concerning the Figure 20.5's depiction of cash management?

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

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?

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

When the company's ledger balance exceeds the bank's ledger balance, the difference is often availability float.

121.Suppose rate of interest increases from 5% to 9% per year.How would firms' cash balance change relative to sales? What would happen when interest rates change from 9% to 5%?

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

A firm is involved in "cheque kiting" if it:

What is float and why can it be valuable?

A firm has estimated that it will need $3,000,000 net cash during the year.Current interest rate on money market securities is 6 percent per year and the cost of buying and selling securities cost $50 per transaction.What is the optimal transaction size of securities?

A firm's net float is equal to its payment float minus its availability float.

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.

FastBucks Inc.has offered to set up a concentration banking system that will save three days of mail float and one day of presentation float.Your receivables average $20,000 per day and the opportunity cost of funds is 6 percent.How much would you be willing to pay FastBucks annually to administer the system perpetually?