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Exam 19: Cash and Liquidity Management

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Question 121

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Your firm generally receives 3 cheques a month. A month is defined as a 30-day period. The cheque amounts and the collection delay for each cheque are shown below. Given this information, What is the amount of the average daily float?

A) $1,333.33
B) $1,736.67
C) $2,188.89
D) $5,133.33
E) $6,673.33

F) A) and B)
G) C) and D)

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Question 122

Multiple Choice

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Marc, a customer of The Blackstone Group, mails a cheque in payment on his account on Thursday, April 13. Blackstone receives the cheque on April 17 and deposits it into the bank on April 18. The Bank releases the funds for use on April 19. What is the length of the availability delay?

A) 1 day
B) 2 days
C) 4 days
D) 5 days
E) 6 days

F) B) and C)
G) B) and D)

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Question 123

Multiple Choice

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Your firm has an available balance of $1,380 and a book balance of $1,210. The deposit of $560 that was made today is not yet included in the bank's balance. There are also 5 cheques outstanding With a total value of $730. What is the net float?

The Lawrence Stone-Age Pottery Co. receives 50 cheques per month from customers. Average payments and clearing times are as follows: five cheques for $21,000, two days; 15 cheques for $58,000, three days; 25 cheques for $37,000, four days; and five cheques for $10,000, five days. Assume a 360-day year. What are the average daily receipts?

Which of the following is the best definition of same day value?

Establishing preauthorized payments for fixed payments from customers should help reduce the total collection time for your firm.

Provide a definition for same day value.

Your firm spends $21,000 a week to pay bills and maintain a lower cash balance limit of $20,000. The standard deviation of the disbursements is $5,000. The applicable weekly interest rate is .065 Percent and the fixed cost of transferring funds is $45. What is your cash balance target based on The Miller-Orr model?

BullsNBears, a purveyor of financial databases, estimates it they disburses $440,000 monthly in order to pay bills. The firm's opportunity rate is 5%. The fixed cost of transferring money is $25 per Transfer. Based on historical data, the standard deviation of monthly cash flows is $15,000 and the Lower cash balance limit is $20,000. For Miller-Orr model questions, assume the interest rate is 0) 5% per month. Using the BAT model, what is the optimum initial cash balance?

Picard Industries requires $250,000 a week to pay its bills. The fixed cost of transferring money is $65 per transfer. The standard deviation of the weekly cash flows is $25,000 and the lower cash Balance limit is $40,000. Assume the applicable annual interest rate is 5% for the BAT model, and The applicable weekly interest rate is 0.1% for the Miller-Orr model. Using the BAT model, what is the total cost of holding cash?

Your chequebook shows you have a $10,000 balance in your account. You write cheques totaling $4,000 and make a deposit of $6,000. What is your collection float?

A firm has excess idle cash due to seasonal fluctuations in cash flow. Management is considering investing the funds in five-year corporate bonds issued by a local firm. What are the pros and cons of this strategy?

Tres Amigos deals strictly with three 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 that every month has 30 Days.

You are considering implementing a lockbox system for your firm. The system is expected to reduce the collection time by 1 day. On an average day, your firm receives 90 checks with an average value Of $105 each. The daily interest rate on Treasury bills is .03 percent. The bank charge per check Would be $.25. What is the anticipated daily cost of the lockbox system?

Precautionary motive is a reason for a firm to maintain liquidity.

One of the objectives of the cash management process is to determine the Best means by which to collect cash owed to the firm.

Desire to invest funds is a primary reason why firms have cash surpluses.

Provide a definition for dividend capture.

When you reconciled your chequebook, you had an adjusted bank balance of $2,650. You had 6 cheques outstanding with a total value of $4,100 and 2 outstanding deposits worth $1,200 each. What is the amount of your collection float?

Collecting your firm's mail earlier in the morning and delivering it directly to the people who process these payments should help reduce the total collection time for your firm.