Exam 19: Cash and Liquidity Management

On an average day, Cory, Inc. writes 30 checks with an average amount of $215. These checks clear the bank in an average of 3 days. What is the average amount of the disbursement float for Cory, Inc.?

The target cash balance is defined as the cash level that:

Provide a definition for lockboxes.

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 is the weighted average float in receiving the funds?

The Eliot Co. needs $210,000 a week to pay bills. The standard deviation of the weekly disbursements is $24,000. The firm has established a lower cash balance limit of $90,000. The applicable interest rate is 4 % and the fixed cost of transferring funds is $60. Based on the BAT model, what is the optimal initial cash balance?

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 total trading cost?

Collection float in general has decreased over the past several years. Explain some of the recent developments that have contributed to this change.

On an average day, your firm writes 33 cheques for an average amount of $210. These cheques clear the bank in 2 days. What is the average amount of your disbursement float?

To use the BAT model of cash management you must know each of the following EXCEPT:

A company receives an average of 280 cheques a day with an average value of $160 a cheque. The annual interest rate is 4%. The current delay in processing and clearing is three days. If the company implements a lockbox service that has been proposed to them, the clearing time will be reduced by two days. What is the maximum fee per cheque that can be charged by the bank and still have the lockbox service be acceptable to the company?

The average daily float is equal to:

Arshadi Wineries is considering the purchase of lockbox services from Bob's Bank. Currently, it takes six days to collect funds from customers; this would be reduced by two days with the lockbox system. The average number of payments received per day is 300 and the average cheque size is $150. Bob's will charge 5' per cheque in return for operating the lockbox system. Assume one-year T-bills yield 5%, and use a 360-day year. What is the maximum acceptable cost per cheque that Arshadi Wineries could pay and still find the system acceptable?

Exclusive, Inc. deals strictly with two 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 weighted average delay? Assume that every month has 30 days.

Your firm deals strictly with three customers. The average amount that 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.

In regards to the Miller-Orr Model, the cash balance of the firm is permitted to fluctuate within a given range.

The target cash balance decreases as the interest rate rises.

Your firm spends $110,000 a week to pay bills and maintains a lower cash balance limit of $50,000. The standard deviation of your disbursements is $15,000. The applicable interest rate is 5 % and the fixed cost of transferring funds is $50. What is your optimal initial cash balance based on the BAT model?

Cyclical activities are a primary reason why firms have cash surpluses.

The time between the receipt of a payment and the deposit of that payment in the bank is called the _____ delay.

Financing of planned expenditures is a primary reason why firms have cash surpluses.