Question 1

Municipal bonds:

Accepted Answer

A) are less liquid than U.S. Treasury bills. 
B) produce income that is subject to federal income taxation. 
C) generally pay a higher coupon than corporate bonds. 
D) are also referred to as commercial paper. 
E) are issued by the federal government. 
A) are less liquid than U.S. Treasury bills. 
B) produce income that is subject to federal income taxation. 
C) generally pay a higher coupon than corporate bonds. 
D) are also referred to as commercial paper. 
E) are issued by the federal government. A

Question 2

Yesterday,the president of RB Enterprises received a phone call from DLK,a competitor.DLK is a sole proprietorship.An unexpected family situation has caused the owner to suddenly want to retire and relocate closer to his family.Thus,the assets of DLK are being offered to RB Enterprises at a bargain basement price.While RB Enterprises had not anticipated purchasing these assets,it was decided that the opportunity was too good to pass up.This illustrates which of the following needs to hold cash?

Accepted Answer

A) precautionary 
B) transaction 
C) speculative 
D) compensation 
E) float 
A) precautionary 
B) transaction 
C) speculative 
D) compensation 
E) float C

Question 3

Which of the following statements is correct?

Accepted Answer

A) A firm has a greater likelihood of needing an unexpected loan when its cash flows are relatively constant over time. 
B) The cost of borrowing affects the target cash balance of a firm. 
C) Management's desire to maintain a low cash balance has no effect on the borrowing needs of a firm. 
D) The target cash balance increases as the interest rate rises. 
E) The target cash balance decreases as the order costs increase. 
A) A firm has a greater likelihood of needing an unexpected loan when its cash flows are relatively constant over time. 
B) The cost of borrowing affects the target cash balance of a firm. 
C) Management's desire to maintain a low cash balance has no effect on the borrowing needs of a firm. 
D) The target cash balance increases as the interest rate rises. 
E) The target cash balance decreases as the order costs increase. B

Question 4

Currently,your firm requires 2 days to process the checks which customers mail in to pay for their credit purchases.The average mail time associated with these payments is 3.4 days and the check clearing time is 2.1 days.If your firm adopts a lockbox system,the mail time will be cut in half.In addition,if employees are reassigned,checks could be processed the same day they are received.How long will your collection time be if both the lockbox system and the job reassignments are implemented?

Accepted Answer

A) 3.85 days 
B) 4.10 days 
C) 4.80 days 
D) 4.90 days 
E) 5.55 days 
A) 3.85 days 
B) 4.10 days 
C) 4.80 days 
D) 4.90 days 
E) 5.55 days

Question 5

Cow Chips,Inc.,a large fertilizer distributor based in California,is planning to use a lockbox system to speed up collections from its customers located on the East Coast.A Philadelphia-area bank will provide this service for an annual fee of $25,000 plus 12 cents per transaction.The estimated reduction in collection and processing time is one day.The average customer payment in this region is $8,200.Treasury bills are currently yielding 5 percent per year.Assume a year has 365 days.Approximately how many customers each day,on average,are needed to make the system profitable for Cow Chips,Inc.?

Accepted Answer

A) 56 
B) 68 
C) 74 
D) 83 
E) 89 
A) 56 
B) 68 
C) 74 
D) 83 
E) 89

Question 6

Atlas Builders deals strictly with five customers.The average amount each customer pays per month along with the collection delay associated with each payment is shown below.Given this information,what is the amount of the average daily receipts? Assume every month has 30 days.

Accepted Answer

A) $1,143.33 
B) $2,546.67 
C) $2,983.33 
D) $6,166.67 
E) $6,860.00 
A) $1,143.33 
B) $2,546.67 
C) $2,983.33 
D) $6,166.67 
E) $6,860.00

Question 7

Collection float:

Accepted Answer

A) is more desirable to firms than disbursement float. 
B) is totally eliminated by the installation of a lockbox system. 
C) exists when a firm's available balance exceeds its book balance. 
D) can be avoided by collecting payments electronically at the time of sale. 
E) is eliminated by implementing a concentration banking system. 
A) is more desirable to firms than disbursement float. 
B) is totally eliminated by the installation of a lockbox system. 
C) exists when a firm's available balance exceeds its book balance. 
D) can be avoided by collecting payments electronically at the time of sale. 
E) is eliminated by implementing a concentration banking system.

Question 8

Rosewell International receives an average of 268 checks a day with an average amount per check of $780.The firm is considering a lockbox system which it anticipates will reduce the average collection time by 1.4 days.The bank charges $0.21 a check for this service.The daily interest rate on Treasury bills is 0.02 percent.What is the net present value of this lockbox arrangement?

Accepted Answer

A) -$61,640 
B) -$11,256 
C) $11,256 
D) $30,820 
E) $61,640 
A) -$61,640 
B) -$11,256 
C) $11,256 
D) $30,820 
E) $61,640

Question 9

Which one of the following statements is correct?

Accepted Answer

A) Funds received via automated clearinghouse transfers are available that day. 
B) A depository transfer check is the most costly means of transferring funds into a cash concentration account. 
C) The means selected to transfer funds into a concentration account depends primarily upon the size of the transfers. 
D) Concentration accounts are used to transfer funds to lockbox locations as needed. 
E) The most expedient means of transferring funds into a concentration account is a wire transfer. 
A) Funds received via automated clearinghouse transfers are available that day. 
B) A depository transfer check is the most costly means of transferring funds into a cash concentration account. 
C) The means selected to transfer funds into a concentration account depends primarily upon the size of the transfers. 
D) Concentration accounts are used to transfer funds to lockbox locations as needed. 
E) The most expedient means of transferring funds into a concentration account is a wire transfer.

Question 10

Donaldson,Inc.spends $94,000 a week to pay bills and maintains a lower cash balance limit of $25,000.The standard deviation of the disbursements is $13,000.The applicable weekly interest rate is 0.045 percent and the fixed cost of transferring funds is $52.What is your optimal average cash balance based on the Miller-Orr model?

Accepted Answer

A) $48,334 
B) $57,623 
C) $82,623 
D) $236,334 
E) $247,334 
A) $48,334 
B) $57,623 
C) $82,623 
D) $236,334 
E) $247,334

Question 11

An account into which funds are deposited only in an amount equal to the value of the checks presented for payment that day is called a _____ account.

Accepted Answer

A) lockbox 
B) concentration 
C) zero-balance 
D) compensating balance 
E) revolving 
A) lockbox 
B) concentration 
C) zero-balance 
D) compensating balance 
E) revolving

Question 12

You are considering implementing a lockbox system for your firm.The system is expected to reduce the average collection time by 2.8 days.On an average day,your firm receives 2,419 checks with an average value of $1,287 each.The daily interest rate on Treasury bills is 0.016 percent.The bank charge per check is $0.30.What is the net present value of this lockbox arrangement?

Accepted Answer

A) -$4,535,625 
B) -$2,611,575 
C) $187,419 
D) $4,181,483 
E) $13,252,733 
A) -$4,535,625 
B) -$2,611,575 
C) $187,419 
D) $4,181,483 
E) $13,252,733

Question 13

A jumbo CD:

Accepted Answer

A) is issued by the federal government. 
B) generally matures between 2 and 5 years. 
C) is a loan of $100,000 or more to a municipality. 
D) is a loan of $1 million or more on a short-term basis. 
E) is a short-term loan of $100,000 or more to a commercial bank. 
A) is issued by the federal government. 
B) generally matures between 2 and 5 years. 
C) is a loan of $100,000 or more to a municipality. 
D) is a loan of $1 million or more on a short-term basis. 
E) is a short-term loan of $100,000 or more to a commercial bank.

Question 14

The Burger Stop spends $52,000 a week to pay bills and maintains a lower cash balance limit of $60,000.The standard deviation of the disbursements is $7,500.The applicable weekly interest rate is 0.04 percent and the fixed cost of transferring funds is $50.What is your optimal average cash balance based on the Miller-Orr model?

Accepted Answer

A) $79,116 
B) $83,208 
C) $110,315 
D) $237,348 
E) $249,624 
A) $79,116 
B) $83,208 
C) $110,315 
D) $237,348 
E) $249,624

Question 15

The Snow Hut has analyzed the carrying and shortage costs associated with its cash holdings and determined that the firm should ideally maintain a cash balance of $3,600.This $3,600 represents which one of the following to the firm?

Accepted Answer

A) target cash balance 
B) concentration balance 
C) available balance 
D) selected cash amount 
E) compensating balance 
A) target cash balance 
B) concentration balance 
C) available balance 
D) selected cash amount 
E) compensating balance

Question 16

Which of the following will reduce collection time?
I.billing customers electronically rather than by mail
II.accepting debit cards but not checks as payment for a sale
III.offering cash discounts for early payment
IV.reducing the processing delay by one day

Accepted Answer

A) I and II only 
B) I and III only 
C) I, II, and III only 
D) II, III, and IV only 
E) I, II, III, and IV 
A) I and II only 
B) I and III only 
C) I, II, and III only 
D) II, III, and IV only 
E) I, II, III, and IV

Question 17

Rosie O'Grady's spends $115,000 a week to pay bills and maintains a lower cash balance limit of $95,000.The standard deviation of the disbursements is $14,600.The applicable interest rate is 4.8 percent and the fixed cost of transferring funds is $50.What is this firm's total cost of holding cash based on the BAT model?

Accepted Answer

A) $1,431 
B) $2,862 
C) $3,034 
D) $4,912 
E) $5,358 
A) $1,431 
B) $2,862 
C) $3,034 
D) $4,912 
E) $5,358

Question 18

Each business day,on average,a company writes checks totaling $26,000 to pay its suppliers.The usual clearing time for the checks is 5 days.Meanwhile,the company is receiving payments from its customers each day,in the form of checks,totaling $40,000.The cash from the payments is available to the firm after 2 days.What is the amount of the firm's average net float?

Accepted Answer

A) $30,00 
B) $50,000 
C) $80,000 
D) $110,000 
E) $130,000 
A) $30,00 
B) $50,000 
C) $80,000 
D) $110,000 
E) $130,000

Question 19

Paper Submarine Manufacturing is investigating a lockbox system to reduce its collection time.It has determined the following:   The total collection time will be reduced by 2 days if the lockbox system is adopted.What is the NPV of adopting the lockbox system?

Accepted Answer

A) $600,000 
B) $675,000 
C) $695,000 
D) $745,000 
E) $795,000 
A) $600,000 
B) $675,000 
C) $695,000 
D) $745,000 
E) $795,000

Question 20

A lockbox is a:

Accepted Answer

A) special safe used by a firm for overnight storage of any cash or undeposited checks. 
B) special safe used by a firm that can only be opened at prespecified times of the day. 
C) box located in a bank's vault that is rented by a firm and used to hold unprocessed checks. 
D) special post office box which can only be opened by prespecified postal inspectors for direct delivery to the addressee. 
E) post office box strategically located so that a firm's receivables can be collected faster. 
A) special safe used by a firm for overnight storage of any cash or undeposited checks. 
B) special safe used by a firm that can only be opened at prespecified times of the day. 
C) box located in a bank's vault that is rented by a firm and used to hold unprocessed checks. 
D) special post office box which can only be opened by prespecified postal inspectors for direct delivery to the addressee. 
E) post office box strategically located so that a firm's receivables can be collected faster.

Municipal bonds:

Which of the following statements is correct?

Atlas Builders deals strictly with five customers.The average amount each customer pays per month along with the collection delay associated with each payment is shown below.Given this information,what is the amount of the average daily receipts? Assume every month has 30 days.

Collection float:

Which one of the following statements is correct?

An account into which funds are deposited only in an amount equal to the value of the checks presented for payment that day is called a _____ account.

A jumbo CD:

The Snow Hut has analyzed the carrying and shortage costs associated with its cash holdings and determined that the firm should ideally maintain a cash balance of $3,600.This $3,600 represents which one of the following to the firm?

Which of the following will reduce collection time? I.billing customers electronically rather than by mail II.accepting debit cards but not checks as payment for a sale III.offering cash discounts for early payment IV.reducing the processing delay by one day

Paper Submarine Manufacturing is investigating a lockbox system to reduce its collection time.It has determined the following: The total collection time will be reduced by 2 days if the lockbox system is adopted.What is the NPV of adopting the lockbox system?

A lockbox is a:

Introduction to Corporate Finance

Financial Statements, Taxes, and Cash Flow

Working With Financial Statements

Long-Term Financial Planning and Growth

Introduction to Valuation: The Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Project Analysis and Evaluation

Some Lessons From Capital Market History

Return, Risk, and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Payout Policy

Short-Term Finance and Planning

Credit and Inventory Management

International Corporate Finance

Behavioral Finance: Implications for Financial Management

Enterprise Risk Management

Options and Corporate Finance

Option Valuation

Mergers and Acquisitions

Leasing

Filters

Exam 19: Cash and Liquidity Management

Municipal bonds:

Which of the following statements is correct?

Atlas Builders deals strictly with five customers.The average amount each customer pays per month along with the collection delay associated with each payment is shown below.Given this information,what is the amount of the average daily receipts? Assume every month has 30 days.

Collection float:

Which one of the following statements is correct?

An account into which funds are deposited only in an amount equal to the value of the checks presented for payment that day is called a _____ account.

A jumbo CD:

The Snow Hut has analyzed the carrying and shortage costs associated with its cash holdings and determined that the firm should ideally maintain a cash balance of $3,600.This $3,600 represents which one of the following to the firm?

Which of the following will reduce collection time? I.billing customers electronically rather than by mail II.accepting debit cards but not checks as payment for a sale III.offering cash discounts for early payment IV.reducing the processing delay by one day

Paper Submarine Manufacturing is investigating a lockbox system to reduce its collection time.It has determined the following: The total collection time will be reduced by 2 days if the lockbox system is adopted.What is the NPV of adopting the lockbox system?

A lockbox is a:

Introduction to Corporate Finance

Financial Statements, Taxes, and Cash Flow

Working With Financial Statements

Long-Term Financial Planning and Growth

Introduction to Valuation: The Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Project Analysis and Evaluation

Some Lessons From Capital Market History

Return, Risk, and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Payout Policy

Short-Term Finance and Planning

Credit and Inventory Management

International Corporate Finance

Behavioral Finance: Implications for Financial Management

Enterprise Risk Management

Options and Corporate Finance

Option Valuation

Mergers and Acquisitions

Leasing

Filters