Question 1

The major difference between a check and a draft is that:

Accepted Answer

A)  the draft is not drawn on the bank but on the issuer. 
B)  the bank must present the draft to the firm for acceptance. 
C)  after acceptance of the draft the firm must deposit the funds to make payment. 
D)  All of these. 
E)  None of these.

Question 2

On an average day,Tennis R Us writes checks totaling $2,000. These checks take 3 days to clear. The company receives checks totaling $1,800. These checks take 2 days to clear. The cost of debt is 8%. What is the firm's net float?

Accepted Answer

A)  $-2,500 
B)  $-2,400 
C)  $2,400 
D)  $2,500 
E)  None of these.

Question 3

The Mesa Bank is offering your company the use of their lockbox services. They estimate that you can reduce your average mail time by 2 days and they can save you a combined clearing and processing time of 1.5 days by putting the checks into the clearing system sooner. The firm receives 320 checks a day on average written for $2,500. The current T-Bill rate is 4% or .0107% per day.
If Mesa will charge your firm an annual fee of $35,000 and $.20 per check handled will you accept Mesa's services?

Accepted Answer

The answer of The Mesa Bank is offering your company...

Question 4

On an average day,Tennis R Us writes checks totaling $2,000. These checks take 3 days to clear. The company receives checks totaling $1,800. These checks take 2 days to clear. The cost of debt is 8%. If the average daily float is $2,500,what is the net present value per day?

Accepted Answer

A)  $-0.55 
B)  $-5.55 
C)  $-252.66 
D)  $-197.00 
E)  None of these.

Question 5

Collection float increases:

Accepted Answer

A)  disbursement float. 
B)  bank cash. 
C)  book cash. 
D)  gross float times net float. 
E)  None of these.

Question 6

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 disbursement float?

Accepted Answer

A)  $-10,500 
B)  $-8,700 
C)  $1,800 
D)  $10,500 
E)  None of these.

Question 7

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. Based on the firm's current practice,how many times during the next 3 months will the cash balance be replenished?

Accepted Answer

A)  3.33 times 
B)  4.42 times 
C)  8.33 times 
D)  13.35 times 
E)  None of these.

Question 8

The Smythe firm expects a total cash need of $9,000 over the next 4 months. They have a beginning cash balance of $1,000,and cash is replenished when it hits zero. The fixed cost of selling securities to replenish cash balances is $4.00. 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)  $3.33 
B)  $5.00 
C)  $5.65 
D)  $6.67 
E)  None of these.

Question 9

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%. If the average daily float is $3,300,what is the net present value per day?

Accepted Answer

A)  $-0.81 
B)  $-79.41 
C)  $-282.48 
D)  $-297.00 
E)  None of these.

Question 10

By getting closer to the source of payment,lockboxes can be used to reduce:

Accepted Answer

A)  availability or clearing float. 
B)  mail float. 
C)  in-house processing float. 
D)  disbursement float. 
E)  None of these.

Question 11

Determining the appropriate target cash balance involves assessing the trade-off between:

Accepted Answer

A)  income and diversification. 
B)  the benefit and cost of liquidity. 
C)  balance sheet strength and transaction needs. 
D)  All of these. 
E)  None of these.

Question 12

The fastest but most expensive way to transfer surplus funds from the local deposit bank to the concentration bank is:

Accepted Answer

A)  a lockbox system. 
B)  a mail float system. 
C)  a wire transfer. 
D)  an in-house processing float system. 
E)  an availability float system.

Question 13

When a firm writes a check,there is an immediate decrease in _____ cash,but no immediate change in _____ cash.

Accepted Answer

A)  bank; collected 
B)  ledger; book 
C)  bank; ledger 
D)  book; bank 
E)  None of these.

Question 14

The Mesa Bank is offering your company the use of their lockbox services. They estimate that you can reduce your average mail time by 2 days and they can save you a combined clearing and processing time of 1.5 days by putting the checks into the clearing system sooner. The firm receives 320 checks a day on average written for $2,500. The current T-Bill rate is 4% or .0107% per day.
What is the savings float and what can you earn if the firm takes Mesa's lockbox service?

Accepted Answer

The answer of The Mesa Bank is offering your company...

Question 15

Auction-Rate Preferred Stock is similar to Adjustable-Rate Preferred Stock (ARPS) in that they:

Accepted Answer

A)  are both issued for 90 days. 
B)  have a dividend rate set by the issuer. 
C)  both have a floating rate and a dividend tax exclusion. 
D)  are equally accessible to the corporate investor directly. 
E)  are not similar in any manner.

Question 16

Which of the following is not true of float management?

Accepted Answer

A)  Float management involves controlling the collection and disbursement of cash. 
B)  An objective of float management is to speed up the collection float. 
C)  An objective of float management is to slow down disbursement float. 
D)  Float management will succeed if the firm can collect late and pay early. 
E)  All of these are true of float management.

Question 17

On an average day,Tennis R Us writes checks totaling $2,000. These checks take 3 days to clear. The company receives checks totaling $1,800. These checks take 2 days to clear. The cost of debt is 8%. What is the firm's disbursement float?

Accepted Answer

A)  $-6,000 
B)  $-4,500 
C)  $4,500 
D)  $6,000 
E)  None of these.

Question 18

On an average day,Tennis R Us writes checks totaling $2,000. These checks take 3 days to clear. The company receives checks totaling $1,800. These checks take 2 days to clear. The cost of debt is 8%. What is the firm's collection float?

Accepted Answer

A)  $-4,500 
B)  $-3,600 
C)  $3,600 
D)  $4,500 
E)  None of these.

Question 19

The Smythe firm expects a total cash need of $9,000 over the next 4 months. They have a beginning cash balance of $1,000,and cash is replenished when it hits zero. The fixed cost of selling securities to replenish cash balances is $4.00. 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)  $36.00 
B)  $37.00 
C)  $40.00 
D)  $42.00 
E)  None of these.

Exam 27: Cash Management