Deck 11: Cash, Payables, and Liquidity Management

Question 1

Bavarian Sausage Cash Transfer
Bavarian Sausage needs to transfer $250,000 from its deposit account into its concentration account. The company could do it with an EDT which would cost $1.50 or a wire transfer for $17. The wire transfer would result in the funds being deposited in the concentration account 2 days earlier. The firm's opportunity cost is 10% and we assume a 360 day year.

-What is the benefit for Bavarian Sausage from using the wire transfer?

A) $138.89
B) $69.44
C) $109.57
D) $53.61

Answer 1

$138.89

Question 2

Bavarian Sausage Cash Transfer
Bavarian Sausage needs to transfer $250,000 from its deposit account into its concentration account. The company could do it with an EDT which would cost $1.50 or a wire transfer for $17. The wire transfer would result in the funds being deposited in the concentration account 2 days earlier. The firm's opportunity cost is 10% and we assume a 360 day year.

-What is the net benefit for Bavarian Sausage from using the wire transfer?

A) $53.01
B) $137.89
C) $60.95
D) $121.89

Answer 2

$121.89

Question 3

You are contemplating purchasing a $1,000,000 181 day T-Bill that is selling at a discount of 4.25%. What is the dollar discount on the T-Bill?

A) $21,368.06
B) $42,500
C) $38,845.26
D) $19,367.51

Answer 3

$21,368.06

Question 4

You are contemplating purchasing a $1,000,000 181 day T-Bill that is selling at a discount of 4.25%. What is the purchase price of the T-Bill?

A) $21,368.06
B) $978,631.94
C) $1,000,000
D) $954,621.52

Question 5

You are contemplating purchasing a $1,000,000 181 day T-Bill that is selling at a discount of 4.25%. What is the money market yield of the T-Bill?

A) 4.34%
B) 4.25%
C) 4.40$%
D) 4.15%

Question 6

You are contemplating purchasing a $1,000,000 181 day T-Bill that is selling at a discount of 4.25%. What is the bond market yield of the T-Bill?

A) 4.25%
B) 4.34%
C) 4.40%
D) 4.15%

Question 7

Smith Enterprise Credit Line
Smith Enterprise has a one year credit line of $5,000,000 with Second Bank. On average Smith uses $3,250,000 of the credit line. Second Bank charges a .45% commitment fee on the unused portion of the line and the interest rate is set at LIBOR +1.5%. The bank also requires a 5% compensating balance.

-If Smith needs to borrow $3,250,000, what is the effective borrowing rate if the LIBOR equals 6.3%?

A) 8.62%
B) 8.04%
C) 7.59%
D) 8.43%

Question 8

Smith Enterprise Credit line (w/o comp)
Smith Enterprise has an one year credit line of $5,000,000 with Second Bank. On average Smith uses $3,250,000 of the credit line. Second Bank charges a .45% commitment fee on the unused portion of the line and the interest rate is set at LIBOR +1.5%. Assume that the LIBOR is 6.3%

-What is Smith's effective borrowing rate?

A) 8.45%
B) 7.59%
C) 8.04%
D) 7.80%

Question 9

Currently, a 91-day Treasury bill sells at a 2.5% discount. What is the price of a $1 million investment?

A) $993,967.12
B) $871,250.00
C) $993,750.00
D) $993,680.56

Question 10

Currently, a $1 million, 91-day T-bill sells at a 2.5% discount. What is the money market yield?

A) 2.500%
B) 2.516%
C) 2.551%
D) 2.532%

Question 11

Currently, a $1 million, 91-day T-bill sells for a 2.5% discount. What is the bond equivalent yield?

A) 2.500%
B) 2.516%
C) 2.551%
D) 2.532%

Question 12

Suppose the cash manager of Smart Products just bought a 91-day T-bill for $992,416.67. What are the discount and bond equivalent yields on this security?

A) 3.06%, 3.03%
B) 3.03%, 3.06%
C) 3.00%, 3.06%
D) 3.00%, 3.03%

Question 13

The firm needs to manage its accounts payable in a fashion that

A) lengthens the payment period.
B) preserves the firm's credit reputation.
C) both a and b.
D) neither a nor b.