Exam 17: Cash,receivables,and Inventory Management

Accounts receivable is an asset representing sales made on credit.

Cash inflows come from

The risk-return tradeoff leads to two objectives: (1)keep enough cash on hand to make necessary payments,and (2)reduce investments in idle cash to a minimum.

Assume that liquid funds can be invested to yield 4.5 percent.If annual remittance checks total $2 billion,what is it worth for the firm to reduce float by 1 day?

Flashbinder Guitars,Inc.is considering a lockbox system that will increase its check processing cost by $.20 per check.The company estimates an average check size of $900 and expects any funds freed up by the new lockbox system can be invested in an account that earns 4% per year before taxes.What reduction in collection time is necessary for the lockbox to be beneficial to Flashbinder Guitars Inc.?

As inflation pushes interest rates up,the cost of carrying inventory rises.

Brett's,Inc.is a national distributor of women's apparel.The company expects to receive 95,000 checks during the coming year totaling $78 million.A large bank has offered to install a lock-box system at a charge of $0.45 per processed check.If Brett's,Inc.is able to earn 5 percent before tax on additional funds,what is the minimum amount of total float days that must be saved to make the system worthwhile? Use a 365-day year.

The Siskiyou Manufacturing Company will collect an estimated $12,000,000 next year; and it will receive an estimated 20,000 checks.Siskiyou's bank has offered to set up a lock-box system that will reduce float time by 4.5 days.The cost of the system will be $ .15 per check.What is the minimum annual interest rate on its cash balance that Siskiyou should receive before it would be willing to adopt the lock-box system?

A company concerned about the liquidity of its near-cash securities should invest in U.S.Treasury bills because the secondary market for U.S.Treasury bills is excellent.

Commercial paper is much more liquid than money-market mutual funds because commercial paper is available to only the most creditworthy corporations.

One advantage of zero balance accounts is an increase in disbursing float.

Effective cash management involves the tradeoff between the risk of insolvency (resulting in higher near cash balances)and the desire to earn higher returns (resulting in lower near cash balances).

Compare the risk of a 90-day unsecured promissory note issued by Southwest Airlines to a 20-year U.S.Government Treasury Bond.

Which of the following has the least interest rate risk?

The initial step in any effective cash management program is cash flow forecasting.

An aging schedule of accounts receivable aids the financial manager in determining

A way of managing a firm's cash disbursements would be through

A company trying to optimize the use of float will try to

The selection of a proper marketable-securities mix involves evaluation of certain criteria.What are these criteria and why are they important?

________ is a short-term promissory note sold by large corporations to raise cash.