Deck 19: Behavioural Finance

Question 1

Check kiting is:

A)used by most firms as an ethical means of handling its cash reserves.
B)the process of withdrawing all funds from a bank account as soon as the funds are available.
C)the central core of a good cash management system.
D)using uncollected cash to invest in short-term, liquid assets.
E)increasingly popular due to recent banking law changes.

Answer 1

D

Question 2

The cash found in a cash drawer that a check-out clerk uses to make change is an example of which of the following motives for holding cash?

A)speculative
B)daily float
C)compensating balance
D)precautionary
E)transaction

Answer 2

E

Question 3

Disbursements float:

A)occurs when a deposit is recorded but the funds are unavailable.
B)causes the book balance to exceed the bank balance.
C)has tended to increase since the enactment of the Check Clearing Act for the 21^st Century.
D)is a recommended source of funds for short-term investments.
E)is eliminated when payments are made electronically.

Answer 3

E

Question 4

A lockbox system:

A)entails the use of a bank which is centrally located to collect payments on a nationwide basis.
B)is designed to deposit a customer's check into the firm's bank account prior to recording the receipt of that check to a customer's account.
C)is used to reduce the disbursement float of a firm.
D)is efficient regardless of the locations selected for lockbox destinations.
E)automatically records payments to a customer's account when the customer's check is received at the lockbox location.

Question 5

A lockbox is a:

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.

Question 6

Which of the following will reduce collection time?
I)billing customers electronically rather than by mail
II)accepting debit cards but not checks as payment for a sale
III)offering cash discounts for early payment
IV)reducing the processing delay by one day

A)I and II only
B)I and III only
C)I, II, and III only
D)II, III, and IV only
E)I, II, III, and IV

Question 7

Yesterday, the president of RB Enterprises received a phone call from DLK, a competitor.DLK is a sole proprietorship.An unexpected family situation has caused the owner to suddenly want to retire and relocate closer to his family.Thus, the assets of DLK are being offered to RB Enterprises at a bargain basement price.While RB Enterprises had not anticipated purchasing these assets, it was decided that the opportunity was too good to pass up.This illustrates which of the following needs to hold cash?

A)precautionary
B)transaction
C)speculative
D)compensation
E)float

Question 8

The Presque Isle Center has branch operations in three states.Each branch deals with a local bank.However, all excess funds in these branch bank accounts are transferred on a daily basis to the firm's primary bank located near the firm's home office.This routine of transferring cash to the primary bank on a regular basis is referred to as:

A)cash concentration.
B)strategic cash disbursement.
C)transfer flotation.
D)payables management.
E)float management.

Question 9

An account into which a firm transfers funds, usually from a master account, in an amount sufficient to cover the checks presented for payment that day is called a _____ account.

A)lockbox
B)cleanup
C)compensating balance
D)revolving
E)controlled disbursement

Question 10

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.

A)lockbox
B)concentration
C)zero-balance
D)compensating balance
E)revolving

Question 11

GT Motors regularly issues short-term debt to finance its daily operations.Suddenly, the credit markets froze and no funds were available for borrowing.Fortunately, the firm had some cash reserves saved that it was able to use to fund its operations until additional credit was available.The need to retain cash for situations such as this is referred to as which one of the following motives for holding cash?

A)speculative
B)float
C)compensating
D)precautionary
E)transaction

Question 12

Float is defined as the:

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

Question 13

Adjustment costs is another name for which one of the following?

A)borrowing costs
B)shortage costs
C)cash transfer costs
D)cash wire costs
E)excess cash costs

Question 14

Why do firms need liquidity?
I)to meet compensating balance requirements
II)to take advantage of an opportunity that suddenly arises
III)to conduct daily business activities
IV)to be prepared for a financial emergency

A)I and II only
B)III and IV only
C)I, III, and IV only
D)II, III, and IV only
E)I, II, III, and IV

Question 15

Which of the following should help reduce the total collection time for a firm?
I)opening a post office box so mail can be received earlier in the morning
II)assigning additional staff in the morning to process incoming payments
III)providing a discount for customers who pay electronically
IV)establishing preauthorized payments from customers

A)I and II only
B)III and IV only
C)II, III, and IV only
D)I, II, and IV only
E)I, II, III, and IV

Question 16

Which one of the following collection times is correctly described?

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.

Question 17

Which one of the following statements is correct?

A)Net float decreases every time a firm issues a check to pay one of its suppliers.
B)A positive net float indicates that collection float exceeds disbursements float.
C)Firms prefer a zero net float over a positive net float.
D)Net float is equal to collection float minus disbursement float.
E)Net float is equal to a firm's available balance minus its book balance.

Question 18

The Snow Hut has analyzed the carrying and shortage costs associated with its cash holdings and determined that the firm should ideally maintain a cash balance of $3,600.This $3,600 represents which one of the following to the firm?

A)target cash balance
B)concentration balance
C)available balance
D)selected cash amount
E)compensating balance

Question 19

Collection float:

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

Question 20

Cash management primarily involves:

A)optimizing a firm's collections and disbursements of cash.
B)maximizing the income a firm earns on its cash reserves.
C)reconciling a firm's book balance with its bank balance.
D)determining the optimal level of liquidity a firm should maintain.
E)determining the best method of raising capital.

Question 21

Brown Trucking is buying a U.S.Treasury bill today with the understanding that the seller will buy it back tomorrow at a slightly higher price.This investment is known as a:

A)commercial paper transaction.
B)repurchase agreement.
C)private certificate of deposit.
D)revenue anticipation note.
E)bill anticipation note.

Question 22

Which of the following statements related to the BAT model is correct?
I)The BAT model is used to determine the target cash balance for a firm.
II)The BAT model is rarely used in business due to its complex nature.
III)The BAT model is a model that helps eliminate a firm's collection float.
IV)One disadvantage of the BAT model is the fact that it assumes all cash outflows are known with certainty.

A)I and II only
B)III and IV only
C)II and III only
D)I and III only
E)I and IV only

Question 23

Which two of the following are the primary reasons why firms temporarily accumulate large cash surpluses?
I)cyclical activities
II)desire to invest funds
III)daily operations
IV)fixed asset purchases

A)I and III only
B)II and IV only
C)I and II only
D)III and IV only
E)I and IV only

Question 24

A zero-balance account:

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.

Question 25

Lockboxes:

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 21^st 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.

Question 26

The main purpose of a cash concentration account is to:

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

Question 27

Which one of the following statements is correct?

A)The money market refers to securities that mature in two years or less.
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)A cyclical firm may purchase marketable securities as part of its short-term financing plan.
E)Corporations are not permitted to invest in money market mutual funds but can invest in bank money market accounts.

Question 28

A cash concentration account:

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.

Question 29

A repurchase agreement generally has a maximum life of:

A)1 day.
B)a few days.
C)one month.
D)one to three months.
E)three to six months.

Question 30

Money market securities have which of the following characteristics?
I)long maturities
II)low default risk
III)high degree of liquidity
IV)low rates of return

A)I and III only
B)II and III only
C)I and IV only
D)II, III, and IV only
E)I, II, III, and IV

Question 31

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

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.

Question 32

A money market preferred stock:

A)has a floating dividend.
B)is sold only under a repurchase agreement.
C)is a special form of commercial paper.
D)has more price volatility than an ordinary preferred.
E)has its interest rate reset daily.

Question 33

Which one of the following statements is correct?

A)Money market accounts are low-risk, high-return investments.
B)The rate of return earned on short-term securities tends to exceed that earned on long-term securities.
C)U.S.Treasury bills are well suited for short-term investments.
D)The income earned on U.S.Treasury bills is exempt from all taxation.
E)Short-term investments tend to have high levels of default risk.

Question 34

Which one of the following statements is correct?

A)Funds received via automated clearinghouse 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 depends primarily upon the size of the transfers.
D)Concentration accounts are used to transfer funds to lockbox locations as needed.
E)The most expedient means of transferring funds into a concentration account is a wire transfer.

Question 35

Which one of the following statements is correct concerning zero-balance accounts?

A)Each zero-balance account is offset by a compensating balance account.
B)Zero-balance accounts are used for depositing incoming funds.
C)A master account must be used in conjunction with a zero-balance account.
D)Zero-balance accounts are used solely in conjunction with a lockbox system.
E)Zero-balance accounts are still required to maintain a minimal balance.

Question 36

Cash concentration accounts:

A)tend to increase the funds available for short-term investing.
B)tend to increase the complexity of a firm's cash management system.
C)that utilize wire transfers rather than automated clearing house transfers are less expensive to maintain.
D)receive checks directly from all of a firm's customers.
E)are all zero-balance accounts.

Question 37

A jumbo CD:

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.

Question 38

Municipal bonds:

A)are less liquid than U.S.Treasury bills.
B)produce income that is subject to federal income taxation.
C)generally pay a higher coupon than corporate bonds.
D)are also referred to as commercial paper.
E)are issued by the federal government.

Question 39

Which of the following costs related to holding cash are minimized when the level of cash a firm holds is optimized?

A)opportunity costs
B)trading costs
C)total costs
D)both trading and opportunity costs
E)trading costs, opportunity costs, and total costs

Question 40

Which of the following variables are included in the BAT model?
I)upper cash limit
II)interest rate on marketable securities
III)opportunity cost of holding cash
IV)fixed cost of each securities trade

A)II only
B)I and III only
C)II and IV only
D)II, III, and IV only
E)I, III, and IV only

Question 41

On average, your firm receives 65 checks a day from customers.These checks, on average, are worth $39.90 each and clear the bank in 1.5 days.In addition, your firm disburses 38 checks a day with an average amount of $89.50.These checks clear your bank in 2 days.What is the average amount of the collection float?

A)$2,473.80
B)$3,401.00
C)$3,890.25
D)$5,101.50
E)$6,802.00

Question 42

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?

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

Question 43

Your firm generally receives 4 checks a month.The check amounts and the collection delay for each check is shown below.Given this information what is the amount of the average daily float? Assume a 30 day month.

A)$1,120
B)$2,333
C)$2,640
D)$2,900
E)$3,416

Question 44

The Hobby Shop has a checking account with a ledger balance of $692.The firm has $1,063 in uncollected deposits and $930 in outstanding checks.What is the amount of the disbursement float on this account?

A)$0
B)$217
C)$930
D)$990
E)$1,063

Question 45

Cross Country Trucking provides transportation services exclusively for four 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 each month has 30 days.

A)2.11 days
B)2.27 days
C)2.46 days
D)2.50 days
E)2.78 days

Question 46

The Blue Star generally receives only 3 checks a month.The check amounts and the collection delay for each check are shown below.Given this information, what is the amount of the average daily float? Assume every month has 30 days.

A)$971.43
B)$1,376.67
C)$3,351.33
D)$5,666.67
E)$6,800.00

Question 47

Atlas Builders deals strictly with five 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 amount of the average daily receipts? Assume every month has 30 days.

A)$1,143.33
B)$2,546.67
C)$2,983.33
D)$6,166.67
E)$6,860.00

Question 48

The Metallurgical Specialty Co.deals strictly with four 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 each month has 30 days.

A)1.98 days
B)2.04 days
C)2.09 days
D)2.16 days
E)2.23 days

Question 49

The BAT model is used to:

A)maximize the benefits of leverage.
B)determine the optimal cash position of a firm.
C)eliminate all daily cash surpluses.
D)analyze the cash balance given fluctuating cash inflows and outflows.
E)maximize the opportunity costs of holding cash.

Question 50

Hoyes Lumber generally receives 3 checks a month.The check amounts and the collection delay for each check are shown below.Given this information, what is the amount of the average daily float? Assume each month has 30 days.

A)$1,386.67
B)$1,407.19
C)$4,750.00
D)$6,833.33
E)$6,933.33

Question 51

Your company has an available balance of $7,911.A deposit of $2,480 that was made this morning is not yet included in the bank's balance.There are also 4 checks outstanding with a value of $360 each.What is the net float?

A)net collection float of $1,040
B)net collection float of $2,480
C)net float of $6,731
D)net disbursement float of $1,300
E)net disbursement float of $2,480

Question 52

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?

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

Question 53

High Brow Express 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.

A)1.79 days
B)1.84 days
C)2.00 days
D)2.07 days
E)2.55 days

Question 54

A firm has $16,718 in outstanding checks that have not cleared the bank.The firm also has $13,450 in deposits that have been recorded by the firm but not by the bank.The current available balance is $11,407.What is the status of the net float?

A)net collection float of $8,138
B)net collection float of $2,043
C)net collection float of $13,450
D)net disbursement float of $3,268
E)net disbursement float of $5,311

Question 55

Hot Tub Builders sells to three retail outlets.Each retailer pays once a month in the amounts shown below.The collection delay associated with each payment is also given below.What is the amount of the average daily receipts if you assume each month has 30 days?

A)$2,389.70
B)$8,513.33
C)$14,608.13
D)$23,896.97
E)$81,900.00

Question 56

The Food Wholesaler generally receives 4 checks a month.The check amounts and the collection delay for each check are shown below.Given this information, what is the amount of the average daily float? Assume every month has 30 days.

A)$3,963.89
B)$21,750.00
C)$22,236.67
D)$28,133.33
E)$35,675.00

Question 57

National Exporters 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 amount of the average daily receipts? Assume that every month has 30 days.

A)$2,653.33
B)$3,006.33
C)$4,533.33
D)$7,811.67
E)$8,600.00

Question 58

The Miller-Orr model:

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*.

Question 59

The Miller-Orr model assumes that:

A)the cash balance is depleted at regular intervals.
B)all cash flows are known with certainty.
C)the average change in the daily cash flows is positive.
D)management will set both the lower and the upper desired levels of cash.
E)the cash balance fluctuates in a random manner.

Question 60

Which of the following statements is correct?

A)A firm has a greater likelihood of needing an unexpected loan when its cash flows are relatively constant over time.
B)The cost of borrowing affects the target cash balance of a firm.
C)Management's desire to maintain a low cash balance has no effect on the borrowing needs of a firm.
D)The target cash balance increases as the interest rate rises.
E)The target cash balance decreases as the order costs increase.

Question 61

It takes your firm 4.5 days to prepare and mail out all the monthly statements to your customers.On average, the mail time between your firm and your customers is 2.6 days.Customer checks take an average of 1.8 days to clear the bank.You have determined that your total average collection time is 6.1 days.How long, on average, does it take your firm to process the payments from customers?

A)1.7 days
B)2.6 days
C)4.4 days
D)4.8 days
E)6.2 days

Question 62

You are considering implementing a lockbox system for your firm.The system is expected to reduce the average collection time by 1.3 days.On an average day, your firm receives 136 checks with an average value of $219 each.The daily interest rate on Treasury bills is 0.021 percent.The bank charge per check is $0.26.What is the anticipated daily cost of the lockbox system?

A)$3.48
B)$6.25
C)$12.60
D)$35.36
E)$36.17

Question 63

On an average day, Goose Down Feathers receives $2,400 in checks from customers.These checks clear the bank in an average of 2.2 days.The applicable daily interest rate is 0.04 percent.What is the present value of the float? Assume each month has 30 days.

A)$115.20
B)$618.40
C)$4,080.00
D)$5,280.00
E)$6,256.50

Question 64

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?

A)2.2 days
B)3.7 days
C)4.3 days
D)5.8 days
E)8.6 days

Question 65

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.

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

Question 66

Rosewell International receives an average of 268 checks a day with an average amount per check of $780.The firm is considering a lockbox system which it anticipates will reduce the average collection time by 1.4 days.The bank charges $0.21 a check for this service.The daily interest rate on Treasury bills is 0.02 percent.What is the net present value of this lockbox arrangement?

A)-$61,640
B)-$11,256
C)$11,256
D)$30,820
E)$61,640

Question 67

Penco Supply spends $325,000 a week to pay bills and maintains a lower cash balance limit of $75,000.The standard deviation of its disbursements is $18,900.The applicable interest rate is 5 percent and the fixed cost of transferring funds is $65.What is the firm's optimal initial cash balance based on the BAT model?

A)$150,600
B)$158,929
C)$170,096
D)$221,506
E)$209,619

Question 68

You are considering implementing a lockbox system for your firm.The system is expected to reduce the average collection time by 1.2 days.On an average day, your firm receives 320 checks with an average value of $99 each.The daily interest rate on Treasury bills is 0.014 percent.What is the anticipated amount of the daily savings if this system is implemented?

A)$2.61
B)$3.29
C)$4.45
D)$5.32
E)$5.78

Question 69

Roger's Distributors receives an average of 310 checks a day.The average amount per check is $629.The firm is considering a lockbox system which it anticipates will reduce the average collection time by 1.5 days.The daily interest rate on Treasury bills is 0.011 percent.What is the amount of the expected daily savings of the lockbox system?

A)$2.04
B)$6.92
C)$14.95
D)$22.42
E)$32.17

Question 70

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?

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

Question 71

Hand Tools, Inc.receives an average of 611 checks a day.The average amount per check is $425.The firm is considering a lockbox system which it anticipates will reduce the average collection time by 1 day.The bank charges $0.275 a check for this service.The daily interest rate on Treasury bills is 0.013 percent.What is the average daily cost of the lockbox system?

A)$31.16
B)$54.19
C)$168.03
D)$180.11
E)$199.19

Question 72

Your firm spends $346,000 a week to pay bills and maintains a lower cash balance limit of $150,000.The standard deviation of your disbursements is $28,700.The applicable interest rate is 5 percent and the fixed cost of transferring funds is $60.What is your optimal average cash balance based on the BAT model?

A)$103,900
B)$146,500
C)$182,200
D)$207,800
E)$249,900

Question 73

On an average day, Wilson & Wilson receives $7,800 in checks from customers.These checks clear the bank in an average of 1.7 days.The applicable daily interest rate is 0.022 percent.What is the highest daily fee this firm should pay to completely eliminate its collection float? Assume each month has 30 days.

A)$1.72
B)$2.92
C)$17.20
D)$24.30
E)$29.17

Question 74

The Eliot Co.needs $185,000 a week to pay bills.The standard deviation of the weekly disbursements is $17,600.The firm has established a lower cash balance limit of $75,000.The applicable interest rate is 5.5 percent and the fixed cost of transferring funds is $47.Based on the BAT model, what is the optimal initial cash balance?

A)$90,668
B)$97,515
C)$104,141
D)$128,224
E)$136,509

Question 75

You are considering implementing a lockbox system for your firm.The system is expected to reduce the average collection time by 2.8 days.On an average day, your firm receives 2,419 checks with an average value of $1,287 each.The daily interest rate on Treasury bills is 0.016 percent.The bank charge per check is $0.30.What is the net present value of this lockbox arrangement?

A)-$4,535,625
B)-$2,611,575
C)$187,419
D)$4,181,483
E)$13,252,733

Question 76

Parkway Express needs $318,000 a week to pay bills.The standard deviation of the weekly disbursements is $31,000.The firm has established a lower cash balance limit of $60,000.The applicable interest rate is 4.5 percent and the fixed cost of transferring funds is $65.Based on the BAT model, what is the opportunity cost of holding cash?

A)$3,873
B)$4,918
C)$5,207
D)$109,283
E)$110,440

Question 77

Your firm spends $54,000 a week to pay bills and maintains a lower cash balance limit of $45,000.The standard deviation of your disbursements is $12,100.The applicable interest rate is 4.5 percent and the fixed cost of transferring funds is $55.What is your opportunity cost of holding cash based on the BAT model?

A)$1,318
B)$1,864
C)$2,204
D)$2,311

Question 78

Rosie O'Grady's spends $115,000 a week to pay bills and maintains a lower cash balance limit of $95,000.The standard deviation of the disbursements is $14,600.The applicable interest rate is 4.8 percent and the fixed cost of transferring funds is $50.What is this firm's total cost of holding cash based on the BAT model?

A)$1,431
B)$2,862
C)$3,034
D)$4,912
E)$5,358

Question 79

Currently, your firm requires 2 days to process the checks which customers mail in to pay for their credit purchases.The average mail time associated with these payments is 3.4 days and the check clearing time is 2.1 days.If your firm adopts a lockbox system, the mail time will be cut in half.In addition, if employees are reassigned, checks could be processed the same day they are received.How long will your collection time be if both the lockbox system and the job reassignments are implemented?

A)3.85 days
B)4.10 days
C)4.80 days
D)4.90 days
E)5.55 days

Question 80

On an average day, Town Center Hardware receives $2,420 in checks from customers.These checks clear the bank in an average of 2.1 days.The applicable daily interest rate is 0.025 percent.What is the maximum amount this store should pay to completely eliminate its collection float? Assume each month has 30 days.

A)$1,152.38
B)$1,288.15
C)$2,109.16
D)$4,637.33
E)$5,082.00