Question 1

Your firm has average daily receipts of €2,500.These receipts are available after 6 days on average.The interest rate that could be earned is .02% (.0002)per day.What is the approximate cost of the float per day?

Accepted Answer

To calculate the cost of float per day, we need to use the formula: 
Float cost per day = average daily receipts x number of days taken for funds to become available x interest rate per day

Using the values given in the question: 
Float cost per day = €2,500 x 6 x 0.0002 = €3

Therefore, the cost of float per day is approximately €3. The closest answer choice is B (€3.00).

Question 2

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 net float?

Accepted Answer

The firm's net float is calculated as the difference between the disbursement float and the collection float. Disbursement float = €1,500 * 7 = €10,500. Collection float = €1,800 * 4 = €7,200. Net float = €10,500 - €7,200 = €3,300.

Question 3

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

The answer of Fly-By-Night Airlines currently has €2.4 million on...

Question 4

During the month you receive 4 cheques,one for €100,two for €200,and one for €500.They are delayed for 2 days,4 days,and 8 days respectively.What is your average daily collection float (a month has 30 days)?

Accepted Answer

The answer of During the month you receive 4 cheques,one...

Question 5

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

The answer of The Timberline firm expects a total need...

Question 6

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%. If the average daily float is €3,300,what is the net present value per day?

Accepted Answer

The correct answer is A because the net present value per day is €-0.81. This is calculated by taking the difference between the cost of debt and the average daily float, and then multiplying by the number of days in a year.

Question 7

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 1.00% per month,what would the firm's total savings be if it switches from its current practice to the optimum practice (as given by the Baumol model)?

Accepted Answer

The Baumol model helps determine the optimal cash balance by minimizing the total cost of holding and replenishing cash. With the interest rate rising to 1% per month, the optimal cash balance changes, leading to savings. Calculating the difference in costs between the current and optimal practices results in savings of €7.09.

Question 8

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

The answer of The Mesa Bank is offering your company...

Question 9

The net float of a firm is made up of disbursement float and collection float.Discuss the three components of collection float and how they would work against the firm.

Accepted Answer

The answer of The net float of a firm is...

Question 10

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

The firm's disbursement float is calculated as the amount of cheques written multiplied by the days it takes to clear: €1,500 * 7 = €10,500.

Question 11

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 collection float?

Accepted Answer

The answer of On an average day,a company writes cheques...

Question 12

Your firm receives 40 cheques per month.Of these,10 are for €1,200 and 30 are for €500.The delay for the €1,200 cheques is 4 days; the €500 cheques are delayed 6 days.What is the weighted average delay?

Accepted Answer

The answer of Your firm receives 40 cheques per month.Of...

Question 13

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

The answer of The Timberline firm expects a total need...

Question 14

Harmony Corporation has a variance of daily cash flow of €8.The daily interest rate is .021% (.00021).Harmony desires a minimum cash balance of €80.The fixed cost of a security transaction is €2.00.Using the Miller-Orr model,calculate Harmony's target cash balance,the upper limit on cash balances,and the average daily cash balance.Explain how this is used to manage cash.

Accepted Answer

The answer of Harmony Corporation has a variance of daily...

Question 15

A firm uses the Miller-Orr model with a minimum balance of €10,a maximum of €80,and a target balance of €40.If the cash balance was to hit €10,what would the firm do?

Accepted Answer

The firm would sell €30 in marketable securities to bring the cash balance back to the target balance of €40 from the minimum balance of €10.

Question 16

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.What is the savings float and what can you earn if the firm takes Mesa's lockbox service?

Accepted Answer

The answer of The Mesa Bank is offering your company...

Question 17

Your firm receives 10 cheques per month.Of these,6 are for €1,000 and 4 are for €500.The delay for the €1,000 cheques is 5 days,and the €500 cheques are delayed 8 days.Calculate the average daily float.

Accepted Answer

The average daily float is calculated by multiplying the amount of each cheque by the number of cheques and the delay, summing these products, and then dividing by the total number of days in the month. ((6 * €1,000 * 5) + (4 * €500 * 8)) / 30 = €1,533.33.

Question 18

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. Using the Baumol model,what is the optimum cash holding?

Accepted Answer

The answer of The Timberline firm expects a total need...

Quiz 27: Cash Management

Your firm has average daily receipts of €2,500.These receipts are available after 6 days on average.The interest rate that could be earned is .02% (.0002) per day.What is the approximate cost of the float per day?

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 net float?

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.

During the month you receive 4 cheques,one for €100,two for €200,and one for €500.They are delayed for 2 days,4 days,and 8 days respectively.What is your average daily collection float (a month has 30 days)?

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%. If the average daily float is €3,300,what is the net present value per day?

The net float of a firm is made up of disbursement float and collection float.Discuss the three components of collection float and how they would work against the firm.

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?

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 collection float?

Your firm receives 40 cheques per month.Of these,10 are for €1,200 and 30 are for €500.The delay for the €1,200 cheques is 4 days; the €500 cheques are delayed 6 days.What is the weighted average delay?

A firm uses the Miller-Orr model with a minimum balance of €10,a maximum of €80,and a target balance of €40.If the cash balance was to hit €10,what would the firm do?

Your firm receives 10 cheques per month.Of these,6 are for €1,000 and 4 are for €500.The delay for the €1,000 cheques is 5 days,and the €500 cheques are delayed 8 days.Calculate the average daily float.