Question 1

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?

Accepted Answer

Net disbursement float = $16,718 - $13,450 = $3,268

Question 2

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.

Accepted Answer

Average daily receipts = ($6,800 + $8,500 + $2,000 + $9,500 + $7,500)/30 = $1,143.33

Question 3

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.

Accepted Answer

Total monthly collections = $287,000 + $416,000 + $139,000 + $233,000 = $1,075,000Weighted average delay = [($287,000/$1,075,000) × 4] + [($416,000/$1,075,000) × 1] + [($139,000/$1,075,000) × 1] + [($233,000/$1,075,000) × 3] = 2.23 days

Question 4

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?

Accepted Answer

Net collection float = $2,480 - (4 × $360) = $1,040

Question 5

The Miller-Orr model:

Accepted Answer

The Miller-Orr model recommends investing an amount equal to (U* - C) in marketable securities when the cash balance reaches U*. This helps to maintain the target cash balance range while earning some interest on the excess cash. Choices A, B, and D are all incorrect as they do not match the recommendations of the Miller-Orr model. Choice C is partially correct as the model does consider the opportunity costs of holding cash, but it also considers transaction costs and has a target cash balance range rather than a single optimal level.

Question 6

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?

Accepted Answer

Average daily receipts = ($42,500 + $149,800 + $63,100)/30 = $8,513.33

Question 7

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.

Accepted Answer

Average daily float = [($6,100 × 3) + ($5,500 × 1) + ($8,900 × 2)]/30 = $1,386.67

Question 8

Which of the following statements is correct?

Accepted Answer

The cost of borrowing affects the target cash balance of a firm because as borrowing becomes more expensive, the firm may need to hold more cash to avoid having to borrow frequently. Options A, C, D, and E are incorrect because they do not accurately reflect the relationship between cash flows, management's desire for low cash balances, interest rates, and order costs with the target cash balance.

Question 9

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.

Accepted Answer

Total monthly collections = $64,000 + $88,200 + $96,500 + $47,900 = $296,600Weighted average delay = [($64,000/$296,600) × 2] + [($88,200/$296,600) × 3] + [($96,500/$296,600) × 2] + [($47,900/$296,600) × 3] = 2.46 days

Question 10

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?

Accepted Answer

Collection float = 65 × $39.90 × 1.5 = $3,890.25

Question 11

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?

Accepted Answer

Collection float = $879 × 2 = $1,758

Question 12

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?

Accepted Answer

Disbursement float = $930

Question 13

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.

Accepted Answer

Average daily float = [($1,500 × 2) + ($3,900 × 1) + ($6,100 × 3) + ($4,200 × 2)]/30 = $1,120

Question 14

The Miller-Orr model assumes that:

Accepted Answer

The answer of The Miller-Orr model assumes that:
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Question 15

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?

Accepted Answer

Disbursement float = 42 × $587 × 2 = $49,308

Question 16

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.

Accepted Answer

Average daily receipts = ($63,200 + $72,800)/30 = $4,533.33

Question 17

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.

Accepted Answer

Average daily float = [($8,800 × 2) + ($2,300 × 3) + ($8,400 × 2]/30 = $1,376.67

Question 18

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.

Accepted Answer

Average daily float = [($67,200 × 3) + ($91,600 × 1) + ($54,200 × 2) + ($88,500 × 3)]/30 = $22,236.67

Question 19

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.

Accepted Answer

Total monthly collections = $478,000 + $575,000 = $1,053,000Weighted average delay = [($478,000/$1,053,000) × 2] + [($575,000/$1,053,000) × 3] = 2.55 days

Question 20

The BAT model is used to:

Accepted Answer

The answer of The BAT model is used to:
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Quiz 19: Cash and Liquidity Management