Exam 19: Cash and Liquidity Management

The Blue Moon Hotel and Spa spends $359,000 a week to pay bills and maintains a lower cash balance limit of $250,000.The standard deviation of the disbursements is $46,800.The applicable weekly interest rate is 0.045 percent and the fixed cost of transferring funds is $60.What is the hotel's optimal upper cash limit based on the Miller-Orr model?

The Miller-Orr model:

Cross Country Trucking provides transportation services exclusively for four 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 weighted average delay? Assume each month has 30 days.

Which two of the following are the primary reasons why firms temporarily accumulate large cash surpluses? I.cyclical activities II.desire to invest funds III.daily operations IV.fixed asset purchases

Travel Inn Express spends $109,000 a week to pay bills and maintains a lower cash balance limit of $125,000.The standard deviation of the disbursements is $14,400.The applicable weekly interest rate is 0.039 percent and the fixed cost of transferring funds is $58.What is the inn's cash balance target based on the Miller-Orr model?

Which one of the following statements is correct?

On an average day,Goose Down Feathers receives $2,400 in checks from customers.These checks clear the bank in an average of 2.2 days.The applicable daily interest rate is 0.04 percent.What is the present value of the float? Assume each month has 30 days.

A lockbox system:

Why do firms need liquidity? I.to meet compensating balance requirements II.to take advantage of an opportunity that suddenly arises III.to conduct daily business activities IV.to be prepared for a financial emergency

A repurchase agreement generally has a maximum life of:

Explain what a zero-balance account is,how it is used,and how it affects cash management.

On an average day,Wilson & Wilson receives $7,800 in checks from customers.These checks clear the bank in an average of 1.7 days.The applicable daily interest rate is 0.022 percent.What is the highest daily fee this firm should pay to completely eliminate its collection float? Assume each month has 30 days.

It takes your firm 4.5 days to prepare and mail out all the monthly statements to your customers.On average,the mail time between your firm and your customers is 2.6 days.Customer checks take an average of 1.8 days to clear the bank.You have determined that your total average collection time is 6.1 days.How long,on average,does it take your firm to process the payments from customers?

Your firm spends $346,000 a week to pay bills and maintains a lower cash balance limit of $150,000.The standard deviation of your disbursements is $28,700.The applicable interest rate is 5 percent and the fixed cost of transferring funds is $60.What is your optimal average cash balance based on the BAT model?

Lockboxes:

Home Roasted Turkeys disburses checks every 4 weeks that average $70,000 and take 5 days to clear.How much interest can the company earn if it delays transfer of funds from an interest-bearing account that pays 0.02 percent per day for these 5 days? Ignore the effects of compound interest.Assume 52 weeks in a year.

The Hobby Shop has a checking account with a ledger balance of $692.The firm has $1,063 in uncollected deposits and $930 in outstanding checks.What is the amount of the disbursement float on this account?

Which one of the following statements is correct?

Cash concentration accounts:

High Brow Express deals strictly with two 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 weighted average delay? Assume that every month has 30 days.