Deck 19: Cash and Liquidity Management

Question 1

A lockbox system:

A) entails the use of a bank that is centrally located to collect payments on a nationwide basis.
B) is designed to deposit payments prior to recording those payments to the customers' accounts.
C) is used to reduce disbursement float.
D) is efficient regardless of the locations selected for lockbox destinations.
E) automatically records payments to customers' accounts as soon as the payments are received at the lockbox location.

Answer 1

is designed to deposit payments prior to recording those payments to the customers' accounts.

Question 2

Which one of the following collection times is correctly described?

A) The processing delay starts when a bill is mailed and ends when the payment is received.
B) Mailing time begins when a bill is mailed and ends when the payment is received.
C) Collection time begins when a bill is mailed and ends when the cash payment is available for spending.
D) Availability delay begins when a payment is deposited and ends when the cash from that payment is available for spending.
E) Processing delay begins when a bill is mailed and ends when the payment of that bill is deposited into the bank.

Answer 2

Availability delay begins when a payment is deposited and ends when the cash from that payment is available for spending.

Question 3

Which one of the following enabled checks to be paid electronically using an electronic image?

A) Check Clearing Act for the 21st Century
B) Zero-balance Account Act
C) Miller-Orr Act
D) E.F. Hutton case
E) Electronic Data Interchange Act of 2013

Answer 3

Check Clearing Act for the 21st Century

Question 4

Collection float:

A) is more desirable to companies than disbursement float.
B) is totally eliminated by the installation of a lockbox system.
C) exists when the available balance exceeds the 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 5

The cash used to make change when customers pay for their purchases in cash is an example of the ________ motive for holding cash.

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

Question 6

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 21st Century.
D) is a recommended source of funds for short-term investments.
E) is eliminated when payments are made electronically.

Question 7

GT Motors regularly issues short-term debt to finance its daily operations. However, the credit markets suddenly tightened and GT is unable to sell debt at this time. Fortunately, they have some cash reserves that they can use to fund operations until additional credit becomes available. The need to retain cash for situations such as this represents which one of the following motives for holding cash?

A) Speculative
B) Float
C) Compensating
D) Precautionary
E) Transaction

Question 8

Which one of these statements is correct?

A) Mailing time affects both collections and disbursements float.
B) A positive net float indicates that collection float exceeds disbursements float.
C) A zero net float is preferred by companies over a positive net float.
D) Net float is equal to collection float minus disbursement float.
E) Mailing time is a component of disbursement float.

Question 9

Check kiting, or systematically overdrawing accounts, is:

A) is used by most companies as an ethical means of handling cash reserves.
B) the process of withdrawing all funds from a bank account as soon as the funds become available.
C) the central core of a modern cash management system.
D) is unethical and has mostly been eliminated.
E) increasingly popular due to recent banking law changes.

Question 10

Float is defined as the:

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

Question 11

Financial electronic data interchange (FEDI):

A) electronically processes invoices but not fund transfers.
B) eliminates the need for lockboxes.
C) was replaced by the Check Clearing Act for the 21st Century.
D) eliminates zero-balance accounts.
E) reduces float.

Question 12

Which one of the following is the least likely to reduce a company's total collection time?

A) Assigning additional staff in the morning to process incoming payments
B) Establishing preauthorized payments from customers
C) Opening a post office box so mail can be received earlier in the morning
D) Providing a discount for customers who pay electronically
E) Depositing funds only at day's end

Question 13

A lockbox is a:

A) special safe used for overnight storage of any cash or undeposited checks.
B) special safe used that can only be opened at pre-specified times of the day.
C) box located in a bank's vault that is rented and used to hold unprocessed checks.
D) special post office box which can only be opened by pre-specified postal inspectors for direct delivery to the addressee.
E) post office box strategically located so that a company's receivables can be collected faster.

Question 14

Which two of the following require liquidity but do not necessarily require cash reserves?

A) Transaction and precautionary motives
B) Compensating balance requirement and precautionary motive
C) Compensating balance requirement and transaction motive
D) Speculative and transaction motives
E) Precautionary and speculative motives

Question 15

Lockboxes:

A) should be geographically located close to primary customers.
B) should be located in remote locations to increase the net disbursement float.
C) offer no additional benefit now that the Check Clearing Act for the 21st Century has been enacted.
D) tend to be negative net present value projects when they involve a large number of sizable transactions.
E) tend to also be used as concentration accounts.

Question 16

The Research 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 company's primary bank located near the 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 17

Cash concentration accounts:

A) tend to increase the funds available for short-term investing.
B) tend to decrease the efficiency of a cash management system.
C) that utilize wire transfers rather than automated clearing house transfers are less expensive to maintain.
D) directly receive all customer payments.
E) are all zero-balance accounts.

Question 18

Cash management primarily involves:

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

Question 19

Which one of the following will increase collection time?

A) Offering cash discounts for early payment
B) Billing customers electronically rather than by mail
C) Reducing the processing delay by one day
D) Accepting debit cards but not checks as payment for a sale
E) Requiring all nationwide payments be mailed to the home office rather than to lockboxes

Question 20

RB Enterprises (RBE) received an unexpected phone call from a competitor offering all of its assets to RBE at a bargain basement price. While RBE had not anticipated purchasing these assets, the opportunity was too good to pass up. This illustrates which one of the following needs to hold cash?

A) Precautionary
B) Transaction
C) Speculative
D) Compensation
E) Float

Question 21

An account into which a company transfers funds in an amount sufficient to just cover the daily demands for payment is called a ________ account.

A) lockbox
B) clean-up
C) compensating balance
D) revolving
E) controlled disbursement

Question 22

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 23

A repurchase agreement generally has a maximum life of:

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

Question 24

Which one of these is a characteristic of money market preferred stock?

A) A floating dividend
B) No dividend payments
C) Totally tax-exempt interest
D) More price volatility than ordinary preferred
E) Interest rate reset daily

Question 25

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 26

Which one of the following statements is correct?

A) Funds received via automated clearing house 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 depend upon the bank used for the concentration account.
D) Concentration accounts are used to transfer funds to lockbox locations as needed.
E) The fastest means of transferring funds into a concentration account is a wire transfer.

Question 27

Which two of the following are key reasons why companies temporarily accumulate large cash surpluses?

A) Dividend payments and fixed expenses
B) Fixed asset purchases and payroll
C) Short-term investments and daily operations
D) Large asset purchases and payments to creditors
E) Large planned expenditures and cyclical activities

Question 28

Money market securities generally have which of the following characteristics?

A) Short maturity, low risk, low liquidity
B) Low default risk, low liquidity, low return
C) High return, high liquidity, low risk
D) High liquidity, low risk, low return
E) Long maturity, low risk, high return

Question 29

The BAT model:

A) computes the fixed costs of securities trading based on the current U.S. Treasury bill rate.
B) accounts for daily fluctuations in cash outflows.
C) assumes cash is replenished when the cash level falls to its average balance.
D) ignores the opportunity costs of holding cash.
E) can be used to determine the target cash balance for a firm.

Question 30

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 that collects the checks from the lockbox is responsible for recording the payments on the customer's accounts.
C) Payments received in a lockbox are transferred immediately to the concentration account.
D) A higher dollar return may be earned on short-term investments due to the cash management system.
E) The concentration account must be zeroed out on a daily basis.

Question 31

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 32

Money market securities:

A) are highly marketable.
B) pay interest that is exempt from federal taxation.
C) generally mature in 6 to 18 months.
D) tend to have a high level of default risk.
E) are issued only by governmental and banking organizations.

Question 33

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) can only be used to transfer funds into zero-balance accounts.
D) is generally the only bank account needed to efficiently manage cash collections.
E) is another name for a controlled disbursement account.

Question 34

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

A) Opportunity costs
B) Trading costs
C) Total costs
D) Both trading and opportunity costs
E) None of the above

Question 35

Which one of the following statements is correct?

A) Two primary reasons why a company holds cash are seasonal fluctuations and short-term investments.
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) The money market refers to securities that mature in one year or less.
E) Corporations are not permitted to invest in money market mutual funds but can invest in bank money market accounts.

Question 36

A jumbo CD:

A) is issued by the federal government.
B) generally matures between two and five 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 37

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 38

Which of the following variables are included in the BAT model?

A) Fixed costs, upper cash limit, target cash limit
B) Total transaction need, upper limit, and lower limit
C) Target cash limit, upper limit, and lower limit
D) Rate of return on market securities, fixed costs, and total transaction need
E) Target cash limit, total transaction need, rate of return on market securities

Question 39

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 40

The 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 41

On an average day, Plastics Enterprises writes 23 checks with an average amount of $842. These checks clear the bank in an average of three days. What is the average amount of the disbursement float?

A) $19,366
B) $2,526
C) $24,654
D) $58,098
E) $73,962

Question 42

When Chris balanced her business check book, she had an adjusted bank balance of $8,911. She had three outstanding deposits worth $349 each and seven checks outstanding with a total value of $948. What is the amount of the collection float on this account?

A) $1,090
B) $1,047
C) $99
D) $806
E) $948

Question 43

As it applies to the BAT model, opportunity costs are defined as:

A) the borrowing costs incurred.
B) interest foregone on cash held.
C) the cash needed for transaction purposes.
D) costs incurred to replenish a cash account.
E) the costs incurred when securities are sold.

Question 44

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 45

The Snow Hut has analyzed the carrying and shortage costs associated with its cash holdings and determined they should ideally maintain a cash balance of $5,200. This $5,200 represents which one of the following?

A) Target cash balance
B) Concentration balance
C) Available balance
D) Selected cash amount
E) Compensating balance

Question 46

Which of the following statements is correct?

A) There is a greater likelihood of needing an unexpected loan when cash flows are relatively constant over time.
B) The cost of borrowing affects the target cash balance.
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 47

Hot Tub Builders sells to three retail dealers under an agreement wherein each dealer pays monthly. The average payments are $148,500, $162,900, and $74,500 from these dealers. Each payment has a collection delay of 1.5 days. What is the amount of the average daily receipts assuming each month has 30 days?

A) $12,333
B) $12,863
C) $19,295
D) $16,840
E) $18,218

Question 48

The Hobby Shop has a checking account with an available balance of $617 and a check book balance of $702. There are $238 in uncollected deposits. What is the amount of the disbursement float on this account?

A) $379
B) $323
C) $153
D) $196
E) $1,081

Question 49

Atlas Builders deals strictly with five customers. The average amounts these customers pay per month are $17,400, $15,900, $22,500, $57,800, and $64,300. The smaller two payments have a collection delay of three days while the others only have a one-day delay. Assume each month has 30 days. What is the amount of the average daily receipts?

A) $5,930
B) $6,920
C) $8,150
D) $14,140
E) $16,680

Question 50

On average, LB Inc. receives 138 payments each day with an average value of $42 each. These payments clear the bank in an average of 1.3 days. In addition, it disburses 2.2 checks a day with an average amount of $2,250. These checks clear the bank in two days. What is the average amount of the collection float?

A) $18,473
B) $3,401
C) $7,535
D) $41,965
E) $49,500

Question 51

The BAT model:

A) maximizes the benefits of leverage.
B) assumes net cash outflows are consistent over time.
C) eliminates all daily cash surpluses.
D) analyzes the cash balance given fluctuating cash outflows.
E) maximizes the opportunity costs of holding cash.

Question 52

Lasko's Mart has an available balance of $2,315. A deposit of $789 was made this morning and is included in the bank's balance. There are three checks outstanding with a value of $289 each. What is the net float?

A) $867
B) $78
C) $789
D) −$867
E) −$78

Question 53

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 54

Specialty Co. deals strictly with three customers who pay monthly amounts of $340,800, $262,900, and $81,300. The $81,300 payment has a collection delay of 2.5 days while the other two have a delay of 1.5 days. What is the weighted average delay assuming each month has 30 days?

A) 1.98 days
B) 1.78 days
C) 2.01 days
D) 1.57 days
E) 1.62 days

Question 55

High Brow Express deals strictly with two customers. The payment from Customer A averages $537,400 and has a collection delay of three days. Customer B's average payment is $737,500 and has a one-day delay. What is the weighted average delay assuming every month has 30 days?

A) 1.79 days
B) 1.62 days
C) 2.02 days
D) 2.07 days
E) 1.84 days

Question 56

Cross Trucking provides services exclusively for three customers. The monthly amounts paid by these customers along with their respective collection delays are: $81,900 with 1.5 days, $47,300 with 2 days, and $68,400 with 2.5 days. Given this information, what is the weighted average delay?

A) 2.11 days
B) 1.94 days
C) 1.97 days
D) 2.06 days
E) 2.01 days

Question 57

The Blue Star generally receives only three checks a month with amounts of $14,809, $16,211, and $14,750. These checks all have a collection delay of 1.5 days. Given this information, what is the amount of the average daily float? Assume every month has 30 days.

A) $1,971
B) $2,289
C) $2,351
D) $1,526
E) $2,833

Question 58

On an average day, GDF Corp. receives $7,218 in checks from customers. These checks clear the bank in an average of 1.6 days. The applicable daily interest rate is .028 percent. What is the present value of eliminating the float? Assume each month has 30 days.

A) $3
B) $6
C) $97
D) $11,549
E) $7,218

Question 59

Southern Meals generally receives four checks a month. One of the checks is for $569 and has a collection delay of three days. The others amounts are $1,318, $907, and $113 and have a one-day delay. Given this information, what is the amount of the average daily float? Assume each month has 30 days.

A) $135
B) $106
C) $94
D) $148
E) $113

Question 60

Hoyes Lumber generally receives three checks a month in the amounts of $654, $987, and $1,310. The $987 check has a two-day collection delay while the others have a one-day delay. Given this information, what is the amount of the average daily float? Assume each month has 30 days.

A) $131
B) $143
C) $147
D) $128
E) $122

Question 61

Each business day, on average, a company writes checks totalling $41,627 to pay its suppliers. The usual clearing time for these checks is 3.2 days. Meanwhile, the company is receiving payments from its customers each day, in the form of checks, totalling $59,948. The cash from the payments is available after 1.5 days. What is the amount of the average net float?

A) $57,772
B) $43,284
C) $42,318
D) $57,366
E) $49,507

Question 62

Paper Mfg. is investigating a lockbox system that would reduce its collection time by two days at a cost of $.42 per transaction. The company receives an average of 498 payments per day with an average value of $1,687 each. The Treasury daily interest rate is .012 percent. What is the NPV of adopting the lockbox system?

A) $28,506
B) −$71,018
C) $54,234
D) $84,468
E) −$62,748

Question 63

On an average day, WW Co. receives $329,418 in checks from customers. These checks clear the bank in an average of 1.46 days. The applicable daily interest rate is .019 percent. What is the highest daily fee that should be paid to completely eliminate the collection float? Assume each month has 30 days.

A) $110.72
B) $91.38
C) $97.20
D) $62.59
E) $99.17

Question 64

On an average day, BJ Footwear receives $26,482 in checks from customers. These checks clear the bank in an average of 1.3 days. The applicable daily interest rate is .016 percent. What is the highest daily fee that should be paid to completely eliminate the collection float? Assume each month has 30 days.

A) $4.24
B) $5.51
C) $5.78
D) $4.18
E) $3.29

Question 65

Currently, it requires two days to process the checks received in the mail from your customers. The average mail time is 2.7 days and the check clearing time is .97 days. If you adopt a lockbox system, the mail time will be cut in half. In addition, if employees are reassigned, checks could be processed in one day. How long will your collection time be if both the lockbox system and the job reassignments are implemented?

A) 3.63 days
B) 3.25 days
C) 3.32 days
D) 3.29 days
E) 3.36 days

Question 66

A mail-order company processes 8,200 checks per month. Of these, 64 percent are for $39 while the remainder are for $69. The $39 checks have a collection delay of 2.1 days on average while the $69 checks are delayed 1.8 days on average. Assume each month has 30 days. The interest rate is 5.2 percent per year. What is the maximum amount that should be paid to reduce the weighted average float to 1.5 days?

A) $10,990
B) $6,130
C) $8,650
D) $5,825
E) $9,675

Question 67

On an average day, Towne Hardware receives $3,028 in checks from customers. These checks clear the bank in an average of 1.84 days. The applicable daily interest rate is .021 percent. What is the maximum amount this store should pay to completely eliminate its collection float? Assume each month has 30 days.

A) $421
B) $1,288
C) $2,109
D) $4,637
E) $5,572

Question 68

If Merilee Industries installs a lockbox system it should reduce its average collection time by 2.2 days at a cost of $.75 per check. On an average day, 594 checks with an average value of $4,618 each are received. The daily interest rate on Treasury bills is .009 percent. What is the net present value of this lockbox arrangement?

A) $4,073,492
B) $2,011,575
C) $1,387,419
D) $1,084,802
E) $974,608

Question 69

Roger's Distributors receives an average of 82 checks a day with an average check amount of $16,329. If a lockbox system is implemented the average collection time should decrease by an average of 1.7 days. The daily interest rate on Treasury bills is .009 percent. What is the amount of the expected daily savings of the lockbox system?

A) $192.04
B) $196.92
C) $114.95
D) $222.42
E) $204.86

Question 70

Your average customer is located 2.9 mailing days away from your office. On average, it takes your staff 1.1 days to process incoming payments and an average of .65 days for your funds to be available for use once you have made your bank deposit. What is your total collection time if 98 percent of your customers pay by mail while the others drop their payment off at your office?

A) 4.65 days
B) 4.63 days
C) 4.57 days
D) 4.61 days
E) 4.59 days

Question 71

Global Markets receives an average of 122 checks a day with an average amount of $498 per check. The installation of a lockbox system should reduce the average collection time by 3.1 days at a cost of $.32 per check. The daily interest rate on Treasury bills is .012 percent. What is the average daily cost of the lockbox system?

A) $7.23
B) $44.87
C) $39.04
D) $8.11
E) $121.02

Question 72

It takes your staff 1.5 days to prepare and mail out all the monthly customer statements. On average, the mail time between your office and your customers is 3.3 days. Customer checks take an average of 1.2 days to clear the bank. You have determined that your total average collection time is 6.3 days. How long, on average, does it take your staff to process the payments from customers?

A) 1.8 days
B) .3 days
C) .7 days
D) 1.4 days
E) 1.1 days

Question 73

International Shoppes receives an average of 418 checks a day with an average amount per check of $607. A lockbox system is expected to reduce the average collection time by 2.3 days. The daily interest rate on Treasury bills is .011 percent. What is the maximum cost per check that can be charged for the company to break-even on the lockbox system?

A) $.154
B) $.167
C) $.159
D) $.163
E) $.147

Question 74

A lockbox system will cost $.42 per check and reduce the average collection time by 1.4 days for a company that receives 164 checks per day with an average value of $219 per check. The daily interest rate on Treasury bills is .011 percent. What is the anticipated daily cost of the lockbox system?

A) $96.43
B) $9.25
C) $23.23
D) $68.88
E) $57.81

Question 75

Freedom Wine receives an average of $684,006 in checks per day. The delay in clearing is typically 1.3 days. The current interest rate is .024 percent per day. Assume each month has 30 days. What is the highest daily fee the company should be willing to pay to eliminate its float entirely?

A) $164
B) $248
C) $219
D) $213
E) $237

Question 76

B&C Co. has an average receipt size of $249. A lockbox service should decrease the average total collection time by 1.6 days at a cost of $95 per day. The company typically receives 2,150 checks per day. The daily Treasury interest rate is .012 percent. What is the NPV of the lockbox project?

A) $64,893
B) $34,508
C) $73,013
D) $28,306
E) $58,497

Question 77

Wilson Publishers is considering implementing a lockbox system that is expected to reduce average collection time by 2.5 days. On an average day, the company receives 1,327 checks with an average value of $49 each. The daily interest rate on Treasury bills is .011 percent. What is the anticipated amount of the daily savings if this system is implemented?

A) $2.48
B) $13.29
C) $14.45
D) $17.88
E) $15.78

Question 78

Assume a check for $127,000 has a collection delay of 1.8 days while a check for $218,900 has a collection delay of 1.5 days. If these are the only two checks received in a 30-day period, what is the weighted average delay?

A) 1.63 days
B) 1.61 days
C) 1.56 days
D) 1.58 days
E) 1.65 days

Question 79

Turkey Farms disburses checks every four weeks that have an average total of $68,900 each which take 3.4 days to clear. How much interest can the company earn annually if it delays transfer of funds from an interest-bearing account that pays .014 percent per day while the payments clear? Ignore the effects of compound interest. Assume each year has exactly 52 weeks.

A) $33
B) $87
C) $131
D) $364
E) $426

Question 80

Beasley Enterprises has an agreement with Downtown Bank whereby the bank handles $1.02 million in collections a day and requires a $750,000 compensating balance. Beasley is contemplating cancelling the agreement and dividing its eastern region so that two other banks would handle its business. Banks A and B would each handle $.51 million of collections per day and each requires a compensating balance of $400,000. Collections should be accelerated by one day if the eastern region is divided. The T-bill rate is 2.97 percent annually. What is the amount of the annual net savings if this plan is adopted?

A) −$20,210
B) $28,809
C) $31,325
D) $29,406
E) −$19,706