Question 1

Lockboxes:

Accepted Answer

A)  should be geographically located close to a firm's primary customers.
B)  should be located in remote locations to increase the net disbursement float.
C)  offer no additional benefit to a firm now that the Check Clearing Act for the 21st Century has been enacted.
D)  tend to be negative net present value projects for firms with a large number of sizeable transactions.
E)  tend to also be used as concentration accounts.F) B) and D)
G) A) and D)

Question 2

A cash concentration account:

Accepted Answer

A)  is frequently used as a source of funds for short-term investments.
B)  cannot be used to cover a compensating balance requirement.
C)  cannot be used to transfer funds into zero-balance accounts.
D)  is generally the only bank account a firm needs to efficiently manage its cash.
E)  is another name for a controlled disbursement account.F) All of the above
G) A) and E)

Question 3

The Burger Stop spends $52,000 a week to pay bills and maintains a lower cash balance limit of $60,000.The standard deviation of the disbursements is $7,500.The applicable weekly interest rate is 0.04 percent and the fixed cost of transferring funds is $50.What is your optimal average cash balance based on the Miller-Orr model?

Accepted Answer

A)  $79,116
B)  $83,208
C)  $110,315
D)  $237,348
E)  $249,624F) A) and B)
G) A) and D)

Question 4

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) A) and E)
G) C) and D)

Question 5

Your firm spends $48,000 a week to pay bills and maintains a lower cash balance limit of $50,000.The standard deviation of the disbursements is $8,100.The applicable weekly interest rate is 0.054 percent and the fixed cost of transferring funds is $65.What is your cash balance target based on the Miller-Orr model?

Accepted Answer

A)  $48,156
B)  $49,990
C)  $54,884
D)  $68,093
E)  $75,726F) A) and B)
G) B) and C)

Question 6

A lockbox is a:

Accepted Answer

A)  special safe used by a firm for overnight storage of any cash or undeposited checks.
B)  special safe used by a firm that can only be opened at prespecified times of the day.
C)  box located in a bank's vault that is rented by a firm and used to hold unprocessed checks.
D)  special post office box which can only be opened by prespecified postal inspectors for direct delivery to the addressee.
E)  post office box strategically located so that a firm's receivables can be collected faster.F) B) and C)
G) A) and B)

Question 7

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?

Accepted Answer

A)  $10,200
B)  $40,800
C)  $76,500
D)  $102,000
E)  $125,000F) A) and B)
G) A) and C)

Question 8

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?

Accepted Answer

A)  $1,174
B)  $5,805
C)  $24,654
D)  $49,308
E)  $73,962F) A) and B)
G) A) and E)

Question 9

A jumbo CD:

Accepted Answer

A)  is issued by the federal government.
B)  generally matures between 2 and 5 years.
C)  is a loan of $100,000 or more to a municipality.
D)  is a loan of $1 million or more on a short-term basis.
E)  is a short-term loan of $100,000 or more to a commercial bank.F) A) and E)
G) B) and E) E

Question 10

A zero-balance account:

Accepted Answer

A)  is used to cover the compensating balance requirement of a line of credit agreement.
B)  is only used to deposit funds received at local lockboxes.
C)  is funded on an as-needed basis only.
D)  is limited to handling payroll disbursements.
E)  requires a compensating balance.F) C) and D)
G) A) and D) C

Question 11

Mountaintop Inns, a Kentucky company, has determined that a majority of its customers are located in the Pennsylvania area.It therefore is considering using a lockbox system offered by a bank located in Pittsburgh, Pennsylvania.The bank has estimated that use of the system will reduce collection time by one day.In addition to the variable charge shown below, there is also a fixed charge of $4,320 per year for the lockbox system.Assume a year has 365 days.What is the NPV of the lockbox system given the following information?

Accepted Answer

A)  -$156,727
B)  -$131,301
C)  -$74,208
D)  $11,507
E)  $26,433F) C) and D)
G) All of the above B

Question 12

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.

Accepted Answer

A)  $3.72
B)  $4.96
C)  $17.78
D)  $34.18
E)  $37.20F) C) and D)
G) C) and E)

Question 13

Explain how a lockbox system operates and why a firm might consider implementing such a system.

Accepted Answer

A lockbox system entails opening post of...

Question 14

When Chris balanced her business checkbook, she had an adjusted bank balance of $11,418.She had 2 outstanding deposits worth $879 each and 11 checks outstanding with a total value of $3,648.What is the amount of the collection float on this account?

Accepted Answer

A)  -$1,890
B)  $1,758
C)  $3,648
D)  $5,406
E)  $6,012F) A) and D)
G) A) and C)

Question 15

Which one of the following collection times is correctly described?

Accepted Answer

A)  The processing delay starts when a firm mails out a billing statement and ends when the payment is received from a customer.
B)  Mailing time begins when a firm mails out a billing statement and ends when the payment is received.
C)  Collection time begins when a firm mails out a billing statement and ends when the cash payment for that billing is available to the firm.
D)  Availability delay begins when a firm deposits a customer's check into its bank account and ends when the cash from that payment is available to the firm.
E)  Processing delay begins when a firm mails out billing statements and ends when the firm deposits the payment for that statement into its bank account.F) C) and D)
G) A) and E)

Question 16

Your average customer is located 4.3 mailing days away from your firm.You have determined that, on average, it is taking your staff 1.5 days to process payments received from customers.In addition, it takes an average of 2.8 days for your funds to be available for use once you have made your bank deposit.What is your firm's collection time?

Accepted Answer

A)  2.2 days
B)  3.7 days
C)  4.3 days
D)  5.8 days
E)  8.6 daysF) None of the above
G) A) and C)

Question 17

Which one of the following statements is correct concerning a cash management system that employs both lockboxes and a concentration bank account?

Accepted Answer

A)  All customer payments must be submitted to a lockbox.
B)  The party which collects the checks from the lockbox is responsible for recording the payment on the customer's account.
C)  Payments received in a lockbox are transferred immediately to the concentration account.
D)  The firm's cash manager determines how the funds in the concentration account are disbursed.
E)  The concentration account must be zeroed out on a daily basis.F) D) and E)
G) B) and D)

Question 18

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?

Accepted Answer

A)  $36,199
B)  $49,568
C)  $67,426
D)  $99,136
E)  $112,400F) A) and E)
G) B) and D)

Question 19

Paper Submarine Manufacturing is investigating a lockbox system to reduce its collection time.It has determined the following:  The total collection time will be reduced by 2 days if the lockbox system is adopted.What is the NPV of adopting the lockbox system?

Accepted Answer

A)  $600,000
B)  $675,000
C)  $695,000
D)  $745,000
E)  $795,000F) B) and E)
G) B) and D)

Question 20

The main 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 E)
G) A) and B)

Exam 19: Behavioural Finance

Lockboxes:

Correct Answer
verified

A cash concentration account:

Correct Answer
verified

Correct Answer
verified

The Miller-Orr model:

Correct Answer
verified

Correct Answer
verified

A lockbox is a:

Correct Answer
verified

Correct Answer
verified

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?

Correct Answer
verified

A jumbo CD:

Correct Answer
verified
E

A zero-balance account:

Correct Answer
verified
C

Correct Answer
verified
B

Correct Answer
verified

Explain how a lockbox system operates and why a firm might consider implementing such a system.

Correct Answer
verified
A lockbox system entails opening post of...
View Answer

When Chris balanced her business checkbook, she had an adjusted bank balance of $11,418.She had 2 outstanding deposits worth $879 each and 11 checks outstanding with a total value of $3,648.What is the amount of the collection float on this account?

Correct Answer
verified

Which one of the following collection times is correctly described?

Correct Answer
verified

Correct Answer
verified

Which one of the following statements is correct concerning a cash management system that employs both lockboxes and a concentration bank account?

Correct Answer
verified

Correct Answer
verified

Paper Submarine Manufacturing is investigating a lockbox system to reduce its collection time.It has determined the following: The total collection time will be reduced by 2 days if the lockbox system is adopted.What is the NPV of adopting the lockbox system?

Correct Answer
verified

The main purpose of a cash concentration account is to:

Correct Answer
verified

Exam 19: Behavioural Finance

Lockboxes:

Correct AnswerverifiedShow Answer

A cash concentration account:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Miller-Orr model:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A lockbox is a:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

A jumbo CD:

Correct AnswerverifiedE

A zero-balance account:

Correct AnswerverifiedC

Correct AnswerverifiedB

Correct AnswerverifiedShow Answer

Explain how a lockbox system operates and why a firm might consider implementing such a system.

Correct AnswerverifiedA lockbox system entails opening post of...View AnswerShow Answer

When Chris balanced her business checkbook, she had an adjusted bank balance of $11,418.She had 2 outstanding deposits worth $879 each and 11 checks outstanding with a total value of $3,648.What is the amount of the collection float on this account?

Correct AnswerverifiedShow Answer

Which one of the following collection times is correctly described?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following statements is correct concerning a cash management system that employs both lockboxes and a concentration bank account?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Paper Submarine Manufacturing is investigating a lockbox system to reduce its collection time.It has determined the following: The total collection time will be reduced by 2 days if the lockbox system is adopted.What is the NPV of adopting the lockbox system?

Correct AnswerverifiedShow Answer

The main purpose of a cash concentration account is to:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
E

Correct Answer
verified
C

Correct Answer
verified
B

Correct Answer
verified

Correct Answer
verified
A lockbox system entails opening post of...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified