Question 1

Collection float:

Accepted Answer

A)   is more desirable to companies than disbursement float.
B)   is totally eliminated by the installation of a lockbox system.
C)   exists when the available balance exceeds the book balance.
D)   can be avoided by collecting payments electronically at the time of sale.
E)   is eliminated by implementing a concentration banking system.F) A) and E)
G) C) and D)

Question 2

Buster's needs $168,000 a week to pay bills and has established a lower cash balance limit of $75,000. The applicable interest rate is 3.17 percent and the fixed cost of transferring funds is $34. Based on the BAT model, what is the optimal initial cash balance?

Accepted Answer

A)   $112,008
B)   $127,515
C)   $104,141
D)   $136,893
E)   $138,407F) B) and E)
G) A) and B)

Question 3

Penco Supply spends $319,600 a week to pay bills and maintains a lower cash balance limit of $65,000. The standard deviation of its disbursements is $12,900. The applicable interest rate is 3.26 percent and the fixed cost of transferring funds is $43. What is the optimal initial cash balance based on the BAT model?

Accepted Answer

A)   $167,154
B)   $210,929
C)   $168,753
D)   $221,506
E)   $209,385F) B) and C)
G) All of the above E

Question 4

Cash management primarily involves:

Accepted Answer

A)   optimizing the collections and disbursements of cash.
B)   maximizing the income earned on cash reserves.
C)   reconciling a company's book balance with its bank balance.
D)   determining the optimal level of liquidity that should be maintained.
E)   determining the best method of raising capital.F) A) and B)
G) A) and D)

Question 5

It takes your staff 1.5 days to prepare and mail out all the monthly customer statements. On average, the mail time between your office and your customers is 3.3 days. Customer checks take an average of 1.2 days to clear the bank. You have determined that your total average collection time is 6.3 days. How long, on average, does it take your staff to process the payments from customers?

Accepted Answer

A)   1.8 days
B)   .3 days
C)   .7 days
D)   1.4 days
E)   1.1 daysF) B) and D)
G) A) and D)

Question 6

Which two of the following are key reasons why companies temporarily accumulate large cash surpluses?

Accepted Answer

A)   Dividend payments and fixed expenses
B)   Fixed asset purchases and payroll
C)   Short-term investments and daily operations
D)   Large asset purchases and payments to creditors
E)   Large planned expenditures and cyclical activitiesF) A) and D)
G) C) and D) E

Question 7

Assume Wilt, Inc. owns 15,000 shares of preferred stock in Dallas Enterprises, Inc. If Dallas Enterprises issues a preferred stock cash dividend of $1.20 per share, what amount per share, if any, is taxable income to Wilt Distributors?

Accepted Answer

A)   $.84
B)   $.60
C)   $1.20
D)   $.72
E)   $0F) None of the above
G) B) and E)

Question 8

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) B) and C)
G) C) and E)

Question 9

Money market securities generally have which of the following characteristics?

Accepted Answer

A)   Short maturity, low risk, low liquidity
B)   Low default risk, low liquidity, low return
C)   High return, high liquidity, low risk
D)   High liquidity, low risk, low return
E)   Long maturity, low risk, high returnF) B) and D)
G) D) and E)

Question 10

AJ's spends $327,800 a week to pay bills and maintains a lower cash balance limit of $50,000. The standard deviation of its disbursements is $36,900. The applicable interest rate is 3.48 percent and the fixed cost of transferring funds is $58. What is the optimal average cash balance based on the BAT model?

Accepted Answer

A)   $119,183
B)   $138,407
C)   $102,209
D)   $97,887
E)   $127,237F) A) and D)
G) B) and E) A

Question 11

Which one of the following statements is correct?

Accepted Answer

A)   Two primary reasons why a company holds cash are seasonal fluctuations and short-term investments.
B)   Banks are prohibited from investing cash surpluses on behalf of their customers on a short- term basis.
C)   Short-term securities tend to have a high degree of interest rate risk.
D)   The money market refers to securities that mature in one year or less.
E)   Corporations are not permitted to invest in money market mutual funds but can invest in bank money market accounts.F) C) and E)
G) B) and D)

Question 12

Cash concentration accounts:

Accepted Answer

A)   tend to increase the funds available for short-term investing.
B)   tend to decrease the efficiency of a cash management system.
C)   that utilize wire transfers rather than automated clearing house transfers are less expensive to maintain.
D)   directly receive all customer payments.
E)   are all zero-balance accounts.F) B) and D)
G) D) and E)

Question 13

GT Motors regularly issues short-term debt to finance its daily operations. However, the credit markets suddenly tightened and GT is unable to sell debt at this time. Fortunately, they have some cash reserves that they can use to fund operations until additional credit becomes available. The need to retain cash for situations such as this represents which one of the following motives for holding cash?

Accepted Answer

A)   Speculative
B)   Float
C)   Compensating
D)   Precautionary
E)   TransactionF) C) and E)
G) A) and D)

Question 14

The Snow Hut has analyzed the carrying and shortage costs associated with its cash holdings and determined they should ideally maintain a cash balance of $5,200. This $5,200 represents which one of the following?

Accepted Answer

A)   Target cash balance
B)   Concentration balance
C)   Available balance
D)   Selected cash amount
E)   Compensating balanceF) B) and C)
G) A) and B)

Question 15

Mountain top Inc. can reduce its collection time by one day if it installs a lockbox system at a cost of $2,200 a year plus $.52 per transaction. The inn receives an average of 136 payments per day with an average payment of $7,980 each. The interest rate on money market securities is 3.98 percent. Assume a year has 365 days. What is the NPV of the lockbox system?

Accepted Answer

A)   $156,727
B)   $368,654
C)   $274,208
D)   $421,730
E)   $226,203F) B) and D)
G) C) and D)

Question 16

Which one of the following enabled checks to be paid electronically using an electronic image?

Accepted Answer

A)   Check Clearing Act for the 21st Century
B)   Zero-balance Account Act
C)   Miller-Orr Act
D)   E.F. Hutton case
E)   Electronic Data Interchange Act of 2013F) A) and B)
G) B) and C)

Question 17

Parkway Express needs $172,540 a week to pay bills. The standard deviation of the weekly disbursements is $8,600. The applicable interest rate is 3.72 percent and the fixed cost of transferring funds is $38. Based on the BAT model, what is the opportunity cost of holding cash?

Accepted Answer

A)   $3,119
B)   $2,518
C)   $5,207
D)   $6,769
E)   $4,508F) None of the above
G) A) and B)

Question 18

Lake Side spends $22,406 a week to pay bills and maintains a lower cash balance limit of $15,000. The standard deviation of disbursements is $1,300. The applicable interest rate is 3.46 percent and the fixed cost of transferring funds is $38. What is the opportunity cost of holding cash based on the BAT model?

Accepted Answer

A)   $791
B)   $875
C)   $804
D)   $567
E)   $728F) All of the above
G) B) and E)

Question 19

Check kiting, or systematically overdrawing accounts, is:

Accepted Answer

A)   is used by most companies as an ethical means of handling cash reserves.
B)   the process of withdrawing all funds from a bank account as soon as the funds become available.
C)   the central core of a modern cash management system.
D)   is unethical and has mostly been eliminated.
E)   increasingly popular due to recent banking law changes.F) A) and C)
G) B) and D)

Question 20

As it applies to the BAT model, opportunity costs are defined as:

Accepted Answer

A)   the borrowing costs incurred.
B)   interest foregone on cash held.
C)   the cash needed for transaction purposes.
D)   costs incurred to replenish a cash account.
E)   the costs incurred when securities are sold.F) B) and D)
G) None of the above

Exam 19: Cash and Liquidity Management

Collection float:

Correct Answer
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Buster's needs $168,000 a week to pay bills and has established a lower cash balance limit of $75,000. The applicable interest rate is 3.17 percent and the fixed cost of transferring funds is $34. Based on the BAT model, what is the optimal initial cash balance?

Correct Answer
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Correct Answer
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E

Cash management primarily involves:

Correct Answer
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Correct Answer
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Which two of the following are key reasons why companies temporarily accumulate large cash surpluses?

Correct Answer
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E

Assume Wilt, Inc. owns 15,000 shares of preferred stock in Dallas Enterprises, Inc. If Dallas Enterprises issues a preferred stock cash dividend of $1.20 per share, what amount per share, if any, is taxable income to Wilt Distributors?

Correct Answer
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A zero-balance account:

Correct Answer
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Money market securities generally have which of the following characteristics?

Correct Answer
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Correct Answer
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A

Which one of the following statements is correct?

Correct Answer
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Cash concentration accounts:

Correct Answer
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Correct Answer
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The Snow Hut has analyzed the carrying and shortage costs associated with its cash holdings and determined they should ideally maintain a cash balance of $5,200. This $5,200 represents which one of the following?

Correct Answer
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Correct Answer
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Which one of the following enabled checks to be paid electronically using an electronic image?

Correct Answer
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Parkway Express needs $172,540 a week to pay bills. The standard deviation of the weekly disbursements is $8,600. The applicable interest rate is 3.72 percent and the fixed cost of transferring funds is $38. Based on the BAT model, what is the opportunity cost of holding cash?

Correct Answer
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Correct Answer
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Check kiting, or systematically overdrawing accounts, is:

Correct Answer
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As it applies to the BAT model, opportunity costs are defined as:

Correct Answer
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Exam 19: Cash and Liquidity Management

Collection float:

Correct AnswerverifiedShow Answer

Buster's needs $168,000 a week to pay bills and has established a lower cash balance limit of $75,000. The applicable interest rate is 3.17 percent and the fixed cost of transferring funds is $34. Based on the BAT model, what is the optimal initial cash balance?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedE

Cash management primarily involves:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which two of the following are key reasons why companies temporarily accumulate large cash surpluses?

Correct AnswerverifiedE

Assume Wilt, Inc. owns 15,000 shares of preferred stock in Dallas Enterprises, Inc. If Dallas Enterprises issues a preferred stock cash dividend of $1.20 per share, what amount per share, if any, is taxable income to Wilt Distributors?

Correct AnswerverifiedShow Answer

A zero-balance account:

Correct AnswerverifiedShow Answer

Money market securities generally have which of the following characteristics?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedA

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

Cash concentration accounts:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Snow Hut has analyzed the carrying and shortage costs associated with its cash holdings and determined they should ideally maintain a cash balance of $5,200. This $5,200 represents which one of the following?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following enabled checks to be paid electronically using an electronic image?

Correct AnswerverifiedShow Answer

Parkway Express needs $172,540 a week to pay bills. The standard deviation of the weekly disbursements is $8,600. The applicable interest rate is 3.72 percent and the fixed cost of transferring funds is $38. Based on the BAT model, what is the opportunity cost of holding cash?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Check kiting, or systematically overdrawing accounts, is:

Correct AnswerverifiedShow Answer

As it applies to the BAT model, opportunity costs are defined as:

Correct AnswerverifiedShow Answer

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E

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E

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A

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