Exam 19: Cash and Liquidity Management

The Cow Pie Spreader Co.spends $214,000 a week to pay bills and maintains a lower cash balance limit of $150,000.The standard deviation of the disbursements is $16,000.The applicable weekly interest rate is 0.025 percent and the fixed cost of transferring funds is $49.What is the firm's cash balance target based on the Miller-Orr model?

Your firm has an average receipt size of $60.A bank has approached you concerning a lockbox service that will decrease your total collection time by 1 day.You typically receive 25,000 checks per day.The daily interest rate is 0.016 percent.What is the NPV of the lockbox project if the bank charges a fee of $210 per day?

Money market securities have which of the following characteristics? I.long maturities II.low default risk III.high degree of liquidity IV.low rates of return

Theo's Bar & Grill needs $153,000 a week to pay bills.The standard deviation of the weekly disbursements is $9,600.The firm has established a lower cash balance limit of $40,000.The applicable interest rate is 3.5 percent and the fixed cost of transferring funds is $40.Based on the BAT model,what is the optimal average cash balance?

Your company has an available balance of $7,911.A deposit of $2,480 that was made this morning is not yet included in the bank's balance.There are also 4 checks outstanding with a value of $360 each.What is the net float?

Hand Tools,Inc.receives an average of 611 checks a day.The average amount per check is $425.The firm is considering a lockbox system which it anticipates will reduce the average collection time by 1 day.The bank charges $0.275 a check for this service.The daily interest rate on Treasury bills is 0.013 percent.What is the average daily cost of the lockbox system?

Check kiting is:

The Food Wholesaler generally receives 4 checks a month.The check amounts and the collection delay for each check are shown below.Given this information,what is the amount of the average daily float? Assume every month has 30 days.

Which one of the following statements is correct?

Disbursements float:

Roger's Distributors receives an average of 310 checks a day.The average amount per check is $629.The firm is considering a lockbox system which it anticipates will reduce the average collection time by 1.5 days.The daily interest rate on Treasury bills is 0.011 percent.What is the amount of the expected daily savings of the lockbox system?

A mail-order firm processes 5,000 checks per month.Of these,55 percent are for $55 and 45 percent are for $65.The $55 checks are delayed 2 days on average; the $65 checks are delayed 5 days on average.Assume each month has 30 days.The interest rate is 6 percent per year.How much should the firm be willing to pay to reduce the weighted average float by 1.4 days?

On an average day,your firm receives $11,800 in checks from customers.These checks clear the bank in an average of 2.8 days.The applicable daily interest rate is 0.015 percent.What is the highest daily fee your firm should pay to completely eliminate the collection float? Assume each month has 30 days.

A firm has $16,718 in outstanding checks that have not cleared the bank.The firm also has $13,450 in deposits that have been recorded by the firm but not by the bank.The current available balance is $11,407.What is the status of the net float?

Never Again Enterprises has an agreement with The Worth Bank whereby the bank handles $3.12 million in collections a day and requires a $1,000,000 compensating balance.Never Again is contemplating canceling the agreement and dividing its eastern region so that two other banks will handle its business.Banks A and B will each handle $1.56 million of collections a day,and each requires a compensating balance of $1,550,000.Never Again's financial management expects that collections will be accelerated by one day if the eastern region is divided.The T-bill rate is 4 percent annually.What is the amount of the annual net savings if this plan is adopted?

Your firm generally receives 4 checks a month.The check amounts and the collection delay for each check is shown below.Given this information what is the amount of the average daily float? Assume a 30 day month.

On an average day,Plastics Enterprises writes 42 checks with an average amount of $587.These checks clear the bank in an average of 2 days.What is the average amount of the disbursement float?

A cash concentration account:

Purple Feet Wine,Inc.receives an average of $6,000 in checks per day.The delay in clearing is typically 4 days.The current interest rate is 0.025 percent per day.Assume 30 days per month.What is the highest daily fee the company should be willing to pay to eliminate its float entirely?

Float management systems may provide only minimal benefits to a firm.Given that most firms have other projects with higher positive net present values,why should a firm's managers spend time implementing a float management system?