Question 1

Rosie O'Grady's spends $98,000 a week to pay bills and maintains a lower cash balance limit of $75,000. The standard deviation of the disbursements is $12,200. The applicable interest rate is 4.36 percent and the fixed cost of transferring funds is $38. What is the total cost of holding cash based on the BAT model?

Accepted Answer

A)   $4,432
B)   $3,862
C)   $2,054
D)   $4,911
E)   $4,109F) A) and B)
G) C) and D)

Question 2

An account into which a company transfers funds in an amount sufficient to just cover the daily demands for payment is called a ________ account.

Accepted Answer

A)   lockbox
B)   clean-up
C)   compensating balance
D)   revolving
E)   controlled disbursementF) A) and E)
G) B) and C)

Question 3

Which one of the following statements is correct?

Accepted Answer

A)   Funds received via automated clearing house transfers are available that day.
B)   A depository transfer check is the most costly means of transferring funds into a cash concentration account.
C)   The means selected to transfer funds into a concentration account depend upon the bank used for the concentration account.
D)   Concentration accounts are used to transfer funds to lockbox locations as needed.
E)   The fastest means of transferring funds into a concentration account is a wire transfer.F) A) and B)
G) A) and C)

Question 4

A lockbox system will cost $.42 per check and reduce the average collection time by 1.4 days for a company that receives 164 checks per day with an average value of $219 per check. The daily interest rate on Treasury bills is .011 percent. What is the anticipated daily cost of the lockbox system?

Accepted Answer

A)   $96.43
B)   $9.25
C)   $23.23
D)   $68.88
E)   $57.81F) B) and D)
G) C) and D)

Question 5

Which one of these is a characteristic of money market preferred stock?

Accepted Answer

A)   A floating dividend
B)   No dividend payments
C)   Totally tax-exempt interest
D)   More price volatility than ordinary preferred
E)   Interest rate reset dailyF) All of the above
G) D) and E)

Question 6

The Hobby Shop has a checking account with an available balance of $617 and a check book balance of $702. There are $238 in uncollected deposits. What is the amount of the disbursement float on this account?

Accepted Answer

A)   $379
B)   $323
C)   $153
D)   $196
E)   $1,081F) A) and B)
G) A) and C)

Question 7

The Blue Star generally receives only three checks a month with amounts of $14,809, $16,211, and $14,750. These checks all have a collection delay of 1.5 days. Given this information, what is the amount of the average daily float? Assume every month has 30 days.

Accepted Answer

A)   $1,971
B)   $2,289
C)   $2,351
D)   $1,526
E)   $2,833F) A) and E)
G) A) and B)

Question 8

Which one of the following is the least likely to reduce a company's total collection time?

Accepted Answer

A)   Assigning additional staff in the morning to process incoming payments
B)   Establishing preauthorized payments from customers
C)   Opening a post office box so mail can be received earlier in the morning
D)   Providing a discount for customers who pay electronically
E)   Depositing funds only at day's endF) A) and C)
G) A) and B)

Question 9

On an average day, BJ Footwear receives $26,482 in checks from customers. These checks clear the bank in an average of 1.3 days. The applicable daily interest rate is .016 percent. What is the highest daily fee that should be paid to completely eliminate the collection float? Assume each month has 30 days.

Accepted Answer

A)   $4.24
B)   $5.51
C)   $5.78
D)   $4.18
E)   $3.29F) D) and E)
G) A) and E)

Question 10

The purpose of a cash concentration account is to:

Accepted Answer

A)   decrease collection float.
B)   decrease disbursement float.
C)   consolidate funds.
D)   replace a lockbox system.
E)   cover compensating balance requirements.F) A) and D)
G) A) and E)

Question 11

Global Markets receives an average of 122 checks a day with an average amount of $498 per check. The installation of a lockbox system should reduce the average collection time by 3.1 days at a cost of $.32 per check. The daily interest rate on Treasury bills is .012 percent. What is the average daily cost of the lockbox system?

Accepted Answer

A)   $7.23
B)   $44.87
C)   $39.04
D)   $8.11
E)   $121.02F) A) and B)
G) All of the above

Question 12

On an average day, Plastics Enterprises writes 23 checks with an average amount of $842. These checks clear the bank in an average of three days. What is the average amount of the disbursement float?

Accepted Answer

A)   $19,366
B)   $2,526
C)   $24,654
D)   $58,098
E)   $73,962F) A) and B)
G) B) and D)

Question 13

Float is defined as the:

Accepted Answer

A)   amount of cash a company can immediately withdraw from its bank account.
B)   difference between book cash and bank cash.
C)   change in the cash balance from one accounting period to the next.
D)   amount of cash on hand.
E)   cash balance according to a company's records.F) C) and D)
G) A) and D)

Question 14

Davidson, Inc., received dividend income on its stock holdings of $138,400 this year. How much tax does the firm owe on this income if its tax rate is 21 percent?

Accepted Answer

A)   $29,064
B)   $14,532
C)   $8,719
D)   $20,345
E)   $0F) A) and B)
G) B) and C)

Question 15

Travel Inn Express spends $89,700 a week to pay bills and maintains a lower cash balance limit of $27,000. The standard deviation of the disbursements is $11,400. The applicable weekly interest rate is .041 percent and the fixed cost of transferring funds is $48. What is the optimal upper cash limit based on the Miller-Orr model?

Accepted Answer

A)   $49,513
B)   $51,359
C)   $94,540
D)   $106,359
E)   $85,118F) A) and B)
G) All of the above

Question 16

An account into which funds are deposited only in an amount equal to the value of the checks presented for payment that day is called a ________ account.

Accepted Answer

A)   lockbox
B)   concentration
C)   zero-balance
D)   compensating balance
E)   revolvingF) A) and D)
G) A) and C)

Question 17

The Miller-Orr model:

Accepted Answer

A)   recommends selling securities in an amount equal to (U* − 
C)   when the cash balance reaches L.
B)   requires that marketable securities be sold whenever the cash balance falls below the target level.
C)   bases the optimal level of cash solely on the opportunity costs of holding cash.
D)   supports the argument that the target cash balance declines as order costs increase.
E)   advocates investing an amount described as (U* - C*)  in marketable securities when the cash balance reaches U*.F) All of the above
G) B) and E)

Exam 19: Cash and Liquidity Management

Float is defined as the:

Correct Answer
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On an average day, Plastics Enterprises writes 23 checks with an average amount of $842. These checks clear the bank in an average of three days. What is the average amount of the disbursement float?

Correct Answer
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The Hobby Shop has a checking account with an available balance of $617 and a check book balance of $702. There are $238 in uncollected deposits. What is the amount of the disbursement float on this account?

Correct Answer
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Which one of the following statements is correct?

Correct Answer
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The Miller-Orr model:

Correct Answer
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Correct Answer
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Which one of these is a characteristic of money market preferred stock?

Correct Answer
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The Blue Star generally receives only three checks a month with amounts of $14,809, $16,211, and $14,750. These checks all have a collection delay of 1.5 days. Given this information, what is the amount of the average daily float? Assume every month has 30 days.

Correct Answer
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The purpose of a cash concentration account is to:

Correct Answer
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A lockbox system will cost $.42 per check and reduce the average collection time by 1.4 days for a company that receives 164 checks per day with an average value of $219 per check. The daily interest rate on Treasury bills is .011 percent. What is the anticipated daily cost of the lockbox system?

Correct Answer
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Correct Answer
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Correct Answer
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Which one of the following is the least likely to reduce a company's total collection time?

Correct Answer
verified

An account into which a company transfers funds in an amount sufficient to just cover the daily demands for payment is called a ________ account.

Correct Answer
verified

Davidson, Inc., received dividend income on its stock holdings of $138,400 this year. How much tax does the firm owe on this income if its tax rate is 21 percent?

Correct Answer
verified

Correct Answer
verified

An account into which funds are deposited only in an amount equal to the value of the checks presented for payment that day is called a ________ account.

Correct Answer
verified

Exam 19: Cash and Liquidity Management

Float is defined as the:

Correct AnswerverifiedShow Answer

On an average day, Plastics Enterprises writes 23 checks with an average amount of $842. These checks clear the bank in an average of three days. What is the average amount of the disbursement float?

Correct AnswerverifiedShow Answer

The Hobby Shop has a checking account with an available balance of $617 and a check book balance of $702. There are $238 in uncollected deposits. What is the amount of the disbursement float on this account?

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

The Miller-Orr model:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of these is a characteristic of money market preferred stock?

Correct AnswerverifiedShow Answer

The Blue Star generally receives only three checks a month with amounts of $14,809, $16,211, and $14,750. These checks all have a collection delay of 1.5 days. Given this information, what is the amount of the average daily float? Assume every month has 30 days.

Correct AnswerverifiedShow Answer

The purpose of a cash concentration account is to:

Correct AnswerverifiedShow Answer

A lockbox system will cost $.42 per check and reduce the average collection time by 1.4 days for a company that receives 164 checks per day with an average value of $219 per check. The daily interest rate on Treasury bills is .011 percent. What is the anticipated daily cost of the lockbox system?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following is the least likely to reduce a company's total collection time?

Correct AnswerverifiedShow Answer

An account into which a company transfers funds in an amount sufficient to just cover the daily demands for payment is called a ________ account.

Correct AnswerverifiedShow Answer

Davidson, Inc., received dividend income on its stock holdings of $138,400 this year. How much tax does the firm owe on this income if its tax rate is 21 percent?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An account into which funds are deposited only in an amount equal to the value of the checks presented for payment that day is called a ________ account.

Correct AnswerverifiedShow Answer

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