Question 1

A financial manager should be concerned about bank cash and net float,which is the sum of:

Accepted Answer

A)  collection and book cash. 
B)  collection float and disbursement float. 
C)  disbursement float and book cash. 
D)  disbursement float and bank credit. 
E)  None of these. 
A)  collection and book cash. 
B)  collection float and disbursement float. 
C)  disbursement float and book cash. 
D)  disbursement float and bank credit. 
E)  None of these.

Question 2

Floating rate CDs differ from regular CDs in that:

Accepted Answer

A)  they have longer maturity. 
B)  they differ substantially in default risk. 
C)  they are not taxed. 
D)  they have coupons that are frequently reset. 
E)  All of these describe differences. 
A)  they have longer maturity. 
B)  they differ substantially in default risk. 
C)  they are not taxed. 
D)  they have coupons that are frequently reset. 
E)  All of these describe differences.

Question 3

Most large firms hold a cash balance greater than most models imply because:

Accepted Answer

A)  it is too difficult to estimate the costs of security transactions. 
B)  banks are compensated by account balances for payment of services. 
C)  corporations have few bank accounts and it is difficult to manage their cash. 
D)  cash is costless and need not be managed closely. 
E)  None of these. 
A)  it is too difficult to estimate the costs of security transactions. 
B)  banks are compensated by account balances for payment of services. 
C)  corporations have few bank accounts and it is difficult to manage their cash. 
D)  cash is costless and need not be managed closely. 
E)  None of these.

Question 4

On an average day,a company writes checks totaling $1,500. These checks take 7 days to clear. The company receives checks totaling $1,800. These checks take 4 days to clear. The cost of debt is 9%. What is the firm's collection float?

Accepted Answer

A)  $-7,200 
B)  $-1,800 
C)  $1,800 
D)  $10,500 
E)  None of these. 
A)  $-7,200 
B)  $-1,800 
C)  $1,800 
D)  $10,500 
E)  None of these.

Question 5

The net float of a firm is made up of disbursement float and collection float. Discuss the three components of collection float and how they would work against the firm.

Accepted Answer

1) Mail float--based on time checks pass

Question 6

Financial managers broaden their definition of cash to include:

Accepted Answer

A)  currency, bank deposits, stocks and bonds. 
B)  currency, checking deposits, undeposited checks, and bonds. 
C)  cash, bonds, bank deposits and short-term marketable securities. 
D)  currency, checking deposits, undeposited checks, and short-term marketable securities. 
E)  None of these. 
A)  currency, bank deposits, stocks and bonds. 
B)  currency, checking deposits, undeposited checks, and bonds. 
C)  cash, bonds, bank deposits and short-term marketable securities. 
D)  currency, checking deposits, undeposited checks, and short-term marketable securities. 
E)  None of these.

Question 7

Marketability risk is synonymous with:

Accepted Answer

A)  maturity risk. 
B)  default risk. 
C)  liquidity risk. 
D)  interest rate risk. 
E)  None of these. 
A)  maturity risk. 
B)  default risk. 
C)  liquidity risk. 
D)  interest rate risk. 
E)  None of these.

Question 8

Fly-By-Night Airlines currently has $2.4 million on deposit with its bank. Fly-By-Night pays its fuel bill by writing a check for $1.1 million. Calculate the company's book cash and bank cash after it writes the check.

Accepted Answer

Book Cash = $2.4 - $

Question 9

Firms would need to hold zero cash when transactions related needs are:

Accepted Answer

A)  greater than cash inflows. 
B)  less than cash inflows. 
C)  not perfectly synchronized with cash inflows. 
D)  perfectly synchronized with cash inflows. 
E)  None of these. 
A)  greater than cash inflows. 
B)  less than cash inflows. 
C)  not perfectly synchronized with cash inflows. 
D)  perfectly synchronized with cash inflows. 
E)  None of these.

Question 10

The Timberline firm expects a total cash need of $12,500 over the next 3 months. They have a beginning cash balance of $1,500,and cash is replenished when it hits zero. The fixed cost of selling securities to replenish cash balances is $3.50. The interest rate on marketable securities is 8% per annum. There is a constant rate of cash disbursement and no cash receipts during the month. What is the total fixed order cost for the next three months based on the firm's current practice?

Accepted Answer

A)  $29.17 
B)  $37.80 
C)  $55.60 
D)  $75.60 
E)  None of these. 
A)  $29.17 
B)  $37.80 
C)  $55.60 
D)  $75.60 
E)  None of these.

Question 11

Which of the following statements concerning zero balance accounts is not correct?

Accepted Answer

A)  They are set up to handle disbursement activity. 
B)  The account has a minimum amount at all times. 
C)  Checks are automatically transferred into the account as checks are presented for payment. 
D)  The transfer is automatic and involves an accounting entry only. 
E)  The master and the zero balance accounts are located at the same bank. 
A)  They are set up to handle disbursement activity. 
B)  The account has a minimum amount at all times. 
C)  Checks are automatically transferred into the account as checks are presented for payment. 
D)  The transfer is automatic and involves an accounting entry only. 
E)  The master and the zero balance accounts are located at the same bank.

Question 12

The target cash balance is reached when:

Accepted Answer

A)  the interest on any marketable security throw-off is maximized. 
B)  the interest foregone from not investing in an equivalent amount of Treasury bills is minimized. 
C)  the value of cash liquidity equals interest foregone on an equivalent amount of Treasury bills. 
D)  the liquidity value is greater than interest foregone on an equivalent amount of Treasury bills. 
E)  None of these. 
A)  the interest on any marketable security throw-off is maximized. 
B)  the interest foregone from not investing in an equivalent amount of Treasury bills is minimized. 
C)  the value of cash liquidity equals interest foregone on an equivalent amount of Treasury bills. 
D)  the liquidity value is greater than interest foregone on an equivalent amount of Treasury bills. 
E)  None of these.

Question 13

Examples of cash disbursements do not include:

Accepted Answer

A)  wages. 
B)  payment for raw materials. 
C)  taxes. 
D)  dividends. 
E)  sales of assets. 
A)  wages. 
B)  payment for raw materials. 
C)  taxes. 
D)  dividends. 
E)  sales of assets.

Question 14

Efficient funds management attempts to reduce mailing and clearing time. Two methods do this by:

Accepted Answer

A)  moving collections and deposits closer together in concentration banks; and moving surplus funds quickly by wire transfers. 
B)  moving mailing points to cross country locations and using depository drafts to transfer funds. 
C)  drawing checks against zero balance accounts and using cross country mailing. 
D)  wiring funds to zero balance accounts and using lockboxes in many cities. 
E)  None of these. 
A)  moving collections and deposits closer together in concentration banks; and moving surplus funds quickly by wire transfers. 
B)  moving mailing points to cross country locations and using depository drafts to transfer funds. 
C)  drawing checks against zero balance accounts and using cross country mailing. 
D)  wiring funds to zero balance accounts and using lockboxes in many cities. 
E)  None of these.

Question 15

Your firm receives 40 checks per month. Of these,10 are for $1,200 and 30 are for $500. The delay for the $1,200 checks is 4 days; the $500 checks are delayed 6 days. What is the weighted average delay?

Accepted Answer

A)  4 days 
B)  4.5 days 
C)  5 days 
D)  5.5 days 
E)  6 days 
A)  4 days 
B)  4.5 days 
C)  5 days 
D)  5.5 days 
E)  6 days

Question 16

The difference between bank cash and book cash is called:

Accepted Answer

A)  float. 
B)  disbursement float. 
C)  net float. 
D)  collection float. 
E)  None of these. 
A)  float. 
B)  disbursement float. 
C)  net float. 
D)  collection float. 
E)  None of these.

Question 17

Auction-Rate Preferred Stock has less risk factors than Adjustable-Rate Preferred Stock (ARPS) because:

Accepted Answer

A)  the reset period is 49 days instead of 90. 
B)  the market sets the dividend level reducing principle volatility. 
C)  better liquidity allows corporate investors to control their investments individually. 
D)  All of these. 
E)  None of these. 
A)  the reset period is 49 days instead of 90. 
B)  the market sets the dividend level reducing principle volatility. 
C)  better liquidity allows corporate investors to control their investments individually. 
D)  All of these. 
E)  None of these.

Question 18

On an average day,a company writes checks totaling $1,500. These checks take 7 days to clear. The company receives checks totaling $1,800. These checks take 4 days to clear. The cost of debt is 9%. What is the firm's net float?

Accepted Answer

A)  $-3,300 
B)  $-300 
C)  $300 
D)  $3,300 
E)  None of these. 
A)  $-3,300 
B)  $-300 
C)  $300 
D)  $3,300 
E)  None of these.

Question 19

Which of the following is not an important characteristic of short-term marketable securities?

Accepted Answer

A)  Maturity risk 
B)  Marketability 
C)  Taxability 
D)  Default risk 
E)  All of these are important. 
A)  Maturity risk 
B)  Marketability 
C)  Taxability 
D)  Default risk 
E)  All of these are important.

Question 20

The Timberline firm expects a total cash need of $12,500 over the next 3 months. They have a beginning cash balance of $1,500,and cash is replenished when it hits zero. The fixed cost of selling securities to replenish cash balances is $3.50. The interest rate on marketable securities is 8% per annum. There is a constant rate of cash disbursement and no cash receipts during the month. What is the total opportunity cost for a month based on the firm's current practice?

Accepted Answer

A)  $5.00 
B)  $18.98 
C)  $27.92 
D)  $60.00 
E)  None of these. 
A)  $5.00 
B)  $18.98 
C)  $27.92 
D)  $60.00 
E)  None of these.

Exam 27: Cash Management

A financial manager should be concerned about bank cash and net float,which is the sum of:

Floating rate CDs differ from regular CDs in that:

Most large firms hold a cash balance greater than most models imply because:

On an average day,a company writes checks totaling $1,500. These checks take 7 days to clear. The company receives checks totaling $1,800. These checks take 4 days to clear. The cost of debt is 9%. What is the firm's collection float?

The net float of a firm is made up of disbursement float and collection float. Discuss the three components of collection float and how they would work against the firm.

Financial managers broaden their definition of cash to include:

Marketability risk is synonymous with:

Fly-By-Night Airlines currently has $2.4 million on deposit with its bank. Fly-By-Night pays its fuel bill by writing a check for $1.1 million. Calculate the company's book cash and bank cash after it writes the check.

Firms would need to hold zero cash when transactions related needs are:

Which of the following statements concerning zero balance accounts is not correct?

The target cash balance is reached when:

Examples of cash disbursements do not include:

Efficient funds management attempts to reduce mailing and clearing time. Two methods do this by:

Your firm receives 40 checks per month. Of these,10 are for $1,200 and 30 are for $500. The delay for the $1,200 checks is 4 days; the $500 checks are delayed 6 days. What is the weighted average delay?

The difference between bank cash and book cash is called:

Auction-Rate Preferred Stock has less risk factors than Adjustable-Rate Preferred Stock (ARPS) because:

On an average day,a company writes checks totaling $1,500. These checks take 7 days to clear. The company receives checks totaling $1,800. These checks take 4 days to clear. The cost of debt is 9%. What is the firm's net float?

Which of the following is not an important characteristic of short-term marketable securities?

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Stock Valuation

Risk and Return: Lessons From Market History

Return and Risk: the Capital Asset Pricing Model Capm

An Alternative View of Risk and Return: The Arbitrage Pricing Theory

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Raising Capital

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Credit and Inventory Management

Mergers, Acquisitions, and Divestitures

Financial Distress

International Corporate Finance

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