Question 1

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.F) C) and D)
G) A) and E)

Question 2

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)  of balance sheet strength and transaction needs.
D)  All of the above.
E)  None of the above.F) B) and D)
G) C) and D)

Question 3

On an average day,a company writes cheques totaling €1,500.These cheques take 7 days to clear.The company receives cheques totaling €1,800.These cheques 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 the above.F) B) and C)
G) B) and D)

Question 4

Firms would need to hold zero cash when transactions related needs are:

Accepted Answer

A)  greater than cash inflows.
B)  less than cash inflows.
C)  not perfectly synchronized with cash inflows.
D)  perfectly synchronized with cash inflows.
E)  None of the above.F) A) and E)
G) A) and D)

Question 5

Fly-By-Night Airlines currently has €2.4 million on deposit with its bank.Fly-By-Night pays its fuel bill by writing a cheque for €1.1 million.Calculate the company's book cash and bank cash after it writes the cheque.

Accepted Answer

Book Cash = €2.4 - €...

Question 6

When a firm writes a cheque,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 the aboveF) B) and C)
G) C) and E)

Question 7

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 the above are true of float management.F) A) and B)
G) A) and C)

Question 8

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.F) B) and E)
G) A) and E)

Question 9

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 cheques into the clearing system sooner.The firm receives 320 cheques 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 cheque handled will you accept Mesa's services?

Accepted Answer

Cost of services: Annual fee = €35,000 Variable fee (€.20)(320)(365)= €23,360 Total fees = €58,360 Total earnings = €109,354 [= €2,800,000(.000107)(365)] Net earnings = € 50,994 Accept Mesa's services.

Question 10

In contrast to the Baumol model,the Miller-Orr model:

Accepted Answer

A)  includes both cash inflows and outflows.
B)  assumes that the distribution of daily cash flows is normally distributed.
C)  allows the cash inflows and outflows to fluctuate randomly from day to day.
D)  All of the above.
E)  None of the above.F) A) and B)
G) A) and C) D

Question 11

A financial manager should be concerned about bank cash and net float,which is the sum of:

Accepted Answer

A)  collection and book cash.
B)  collection float and disbursement float.
C)  disbursement float and book cash.
D)  disbursement float and bank credit.
E)  None of the above.F) A) and B)
G) B) and D)

Question 12

Which of the following is not an important characteristic of short-term marketable securities?

Accepted Answer

A)  Maturity risk
B)  Marketability
C)  Taxability
D)  Default risk
E)  All of the above are important.F) C) and D)
G) A) and E)

Question 13

Most large firms hold a cash balance greater than most models imply because:

Accepted Answer

A)  it is too difficult to estimate the costs of security transactions.
B)  banks are compensated by account balances for payment of services.
C)  corporations have few bank accounts and it is difficult to manage their cash.
D)  cash is costless and need not be managed closely.
E)  None of the above.F) B) and D)
G) All of the above

Question 14

The target cash balance is reached when:

Accepted Answer

A)  the interest on any marketable security throw-off is maximized.
B)  the interest foregone from not investing in an equivalent amount of Treasury bills is minimized.
C)  the value of cash liquidity equals interest foregone on an equivalent amount of Treasury bills.
D)  the liquidity value is greater than interest foregone on an equivalent amount of Treasury bills.
E)  None of the above.F) A) and D)
G) A) and C)

Question 15

Cheques written by the firm are said to generate:

Accepted Answer

A)  collection float.
B)  ledger float.
C)  disbursement float.
D)  book float.
E)  None of the above.F) A) and E)
G) C) and D)

Question 16

Floating rate CD's differ from regular CD's in that:

Accepted Answer

A)  they have longer maturity.
B)  they differ substantially in default risk.
C)  they are not taxed.
D)  they have coupons that are frequently reset.
E)  All of the above describe differences.F) A) and E)
G) A) and B)

Question 17

The Timberline firm expects a total 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. If interest rates were to rise to 12.00% per annum,what would be the firm's optimum cash balance using the Baumol model?

Accepted Answer

A)  €295.81
B)  €853.91
C)  €1,024.70
D)  €2,958.04
E)  None of the above.F) B) and C)
G) C) and D)

Question 18

Adjustable rate preferred stock (ARPS) offer competitive rates of return with traditional money-market instruments but:

Accepted Answer

A)  are not rated by Moody's or Standard & Poor's.
B)  still provide the corporate investor with the tax exclusion on dividend income.
C)  have a fixed rate of dividend income.
D)  offers a highly competitive trading market.
E)  None of the above.F) A) and B)
G) B) and C)

Question 19

The Timberline firm expects a total 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. What is the total saving to the firm if it switches from its current practice to the optimum practice (as given by the Baumol model) ?

Accepted Answer

A)  €9.99
B)  €34.20
C)  €64.96
D)  €122.46
E)  None of the above.F) C) and E)
G) A) and E) A

Question 20

Even though the dividend rate on an Adjustable-Rate Preferred Stock (ARPS) is floating to keep in line with interest rates,the instrument still suffers from risk such as:

Accepted Answer

A)  a thin market causing potential principal risk and liquidity concerns.
B)  the risk of downgrades from the narrow range of issuers.
C)  the impact of tax law changes,which may reduce the after-tax value of the instrument.
D)  All of the above.
E)  None of the above.F) A) and C)
G) A) and B)

Exam 27: Cash Management

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

Correct Answer
verified

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

Correct Answer
verified

On an average day,a company writes cheques totaling €1,500.These cheques take 7 days to clear.The company receives cheques totaling €1,800.These cheques take 4 days to clear.The cost of debt is 9%. What is the firm's disbursement float?

Correct Answer
verified

Firms would need to hold zero cash when transactions related needs are:

Correct Answer
verified

Fly-By-Night Airlines currently has €2.4 million on deposit with its bank.Fly-By-Night pays its fuel bill by writing a cheque for €1.1 million.Calculate the company's book cash and bank cash after it writes the cheque.

Correct Answer
verified
Book Cash = €2.4 - €...
View Answer

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

Correct Answer
verified

Which of the following is not true of float management?

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

Correct Answer
verified

Correct Answer
verified
Cost of services: Annual fee = €35,000 Variable fee (€.20)(320)(365)= €23,360 Total fees = €58,360 Total earnings = €109,354 [= €2,800,000(.000107)(365)] Net earnings = € 50,994 Accept Mesa's services.

In contrast to the Baumol model,the Miller-Orr model:

Correct Answer
verified
D

A financial manager should be concerned about bank cash and net float,which is the sum of:

Correct Answer
verified

Which of the following is not an important characteristic of short-term marketable securities?

Correct Answer
verified

Most large firms hold a cash balance greater than most models imply because:

Correct Answer
verified

The target cash balance is reached when:

Correct Answer
verified

Cheques written by the firm are said to generate:

Correct Answer
verified

Floating rate CD's differ from regular CD's in that:

Correct Answer
verified

Correct Answer
verified

Adjustable rate preferred stock (ARPS) offer competitive rates of return with traditional money-market instruments but:

Correct Answer
verified

Correct Answer
verified
A

Even though the dividend rate on an Adjustable-Rate Preferred Stock (ARPS) is floating to keep in line with interest rates,the instrument still suffers from risk such as:

Correct Answer
verified

Exam 27: Cash Management

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

On an average day,a company writes cheques totaling €1,500.These cheques take 7 days to clear.The company receives cheques totaling €1,800.These cheques take 4 days to clear.The cost of debt is 9%. What is the firm's disbursement float?

Correct AnswerverifiedShow Answer

Firms would need to hold zero cash when transactions related needs are:

Correct AnswerverifiedShow Answer

Fly-By-Night Airlines currently has €2.4 million on deposit with its bank.Fly-By-Night pays its fuel bill by writing a cheque for €1.1 million.Calculate the company's book cash and bank cash after it writes the cheque.

Correct AnswerverifiedBook Cash = €2.4 - €...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is not true of float management?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedCost of services: Annual fee = €35,000 Variable fee (€.20)(320)(365)= €23,360 Total fees = €58,360 Total earnings = €109,354 [= €2,800,000(.000107)(365)] Net earnings = € 50,994 Accept Mesa's services.

In contrast to the Baumol model,the Miller-Orr model:

Correct AnswerverifiedD

A financial manager should be concerned about bank cash and net float,which is the sum of:

Correct AnswerverifiedShow Answer

Which of the following is not an important characteristic of short-term marketable securities?

Correct AnswerverifiedShow Answer

Most large firms hold a cash balance greater than most models imply because:

Correct AnswerverifiedShow Answer

The target cash balance is reached when:

Correct AnswerverifiedShow Answer

Cheques written by the firm are said to generate:

Correct AnswerverifiedShow Answer

Floating rate CD's differ from regular CD's in that:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Adjustable rate preferred stock (ARPS) offer competitive rates of return with traditional money-market instruments but:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedA

Even though the dividend rate on an Adjustable-Rate Preferred Stock (ARPS) is floating to keep in line with interest rates,the instrument still suffers from risk such as:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
Book Cash = €2.4 - €...
View Answer

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Cost of services: Annual fee = €35,000 Variable fee (€.20)(320)(365)= €23,360 Total fees = €58,360 Total earnings = €109,354 [= €2,800,000(.000107)(365)] Net earnings = € 50,994 Accept Mesa's services.

Correct Answer
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D

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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A

Correct Answer
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