Question 1

Place the following in the correct order of priority for selecting short-term investments:

Accepted Answer

A)   expected return,liquidity,preservation of capital
B)   expected return,preservation of capital,liquidity
C)   liquidity,expected return,preservation of capital
D)   preservation of capital,liquidity,expected returnE) B) and C)
F) A) and D)

Question 2

Coyote Valley Products
Coyote Valley Products has daily cash collections of $500,000. The cash management staff has determined (1)  customers’ payments are in the mail an average of 3 days; (2)  processing after receipt averages 1 day; and (3)  after deposit funds are cleared on average in 2 days. Assume a 365 day year.

-What would be the benefit of a lock-box system that reduced mail float by 1.5 days,eliminated processing float,and reduced clearing float by 1 day,if Coyote Valley Products faces a 9% opportunity cost of funds?

Accepted Answer

A)   $112,500
B)   $157,500
C)   $180,000
D)   $67,500E) A) and D)
F) B) and C) B

Question 3

Bavarian Brew Float
Bavarian Brew receives about 350 checks a day with an average check size of $550. Currently customer’s payments spend 2 days in the mail. Once a check is received it takes about 1.5 days to process it and another 4 days to clear the banking system. The firm’s opportunity cost is 10%. Assume a 365-day year.

-What is Bavarian Brew's collection float?

Accepted Answer

A)   4 days
B)   2 days
C)   1.5 days
D)   7.5 daysE) C) and D)
F) None of the above

Question 4

Which of the following credit terms has the highest relevant cost?

Accepted Answer

A)   3/10 net 60
B)   2/10 net 30
C)   2/15 net 45
D)   4/15 net 90E) None of the above
F) B) and C)

Question 5

Purchasing (or procurement) cards are designed to:

Accepted Answer

A)   reduce the cost of low-dollar indirect purchases.
B)   help combat a common type of check fraud.
C)   provide a company with outsourcing of its accounts payable or disbursement operations.
D)   eliminate nonearning cash balances in corporate checking accounts.E) A) and D)
F) A) and C)

Question 6

Roxy is evaluating a Treasury Bill.It is a $1 million face value with a discount of 2.75% and maturing in 182 days.What is the money market yield?

Accepted Answer

A)   2.789%
B)   2.828%
C)   2.750%
D)   2.788%E) B) and D)
F) All of the above

Question 7

Coyote Valley Products
Coyote Valley Products has daily cash collections of $500,000. The cash management staff has determined (1)  customers’ payments are in the mail an average of 3 days; (2)  processing after receipt averages 1 day; and (3)  after deposit funds are cleared on average in 2 days. Assume a 365 day year.

-If Coyote Valley Products faces an 8% opportunity cost of funds,what is the most it would pay to implement a lock-box system that reduces collection float by 2 days?

Accepted Answer

A)   $40,000
B)   $60,000
C)   $80,000
D)   $100,000E) C) and D)
F) A) and B)

Question 8

The time between receipt of the payment and its deposit into the firm's account is

Accepted Answer

A)   mail float.
B)   processing float.
C)   availability float.
D)   clearing float.E) B) and C)
F) C) and D) B

Question 9

Which of the following statements concerning mail-based collection systems is true?

Accepted Answer

A)   Regardless of recent developments in payment processing equipment,it is still too expensive for smaller companies to use mail-based collection systems.
B)   Generally it is cheaper for high-volume processors to use the lockbox system rather than mail-based collection systems.
C)   Low-volume processors may find that using a lockbox system is more cost effective than a mail-based collection system.
D)   All of the above statements are true.
E)   Only (a) and (b) are true.F) None of the above
G) A) and B)

Question 10

Special post office boxes set up by the firm to expedite the receipt and processing of its accounts receivables are called

Accepted Answer

A)   safety-deposit boxes
B)   lockboxes
C)   float reducers
D)   none of the aboveE) None of the above
F) All of the above

Question 11

The amount of time that it takes for a check to clear through the banking system is called

Accepted Answer

A)   mail float
B)   processing float
C)   clearing float
D)   delivery floatE) A) and B)
F) A) and C)

Question 12

An unsigned check drawn on one of the firm's bank accounts and deposited in another of the firm's bank accounts is

Accepted Answer

A)   an automated clearinghouse debit transfer.
B)   a depository transfer check.
C)   a wire transfer.
D)   none of the above.E) All of the above
F) A) and B)

Question 13

Your cost of capital is 16% and you are offered credit terms of 1/10 net 60.Do you take the discount or not and why?

Accepted Answer

A)   you take the discount because 7.37% is less than 16%
B)   you do not take the discount because 7.37% is less than 16%
C)   you take the discount because 23.37% is greater than 16%
D)   you do not take the discount because 7.37% is less than 16% .E) A) and B)
F) A) and D)

Question 14

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%

-Refer to Smith Enterprise Credit line (w/o comp) .What is the change in your EBR if you only borrow $2,000,000 instead of $3,250,000?

Accepted Answer

A)   increases by .44%
B)   decreases by .44%
C)   does not change
D)   increases by .78%E) A) and C)
F) All of the above

Question 15

Which of the following are listed as a common fraud prevention measures?

Accepted Answer

A)   Using positive pay services
B)   Separating check-issuance duties (approval,signing and reconciliation) 
C)   Increasing the use of electronic payment methods
D)   Using safety measures on checks such as microprinting and watermarks
E)   all of the above are listed as common fraud prevention measuresF) B) and E)
G) A) and C)

Question 16

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%

-Refer to Smith Enterprise Credit line (w/o comp) .If you only borrowed $2,000,000 against the line,what would be your effective borrowing rate?

Accepted Answer

A)   7.80%
B)   8.04%
C)   8.45%
D)   8.48%E) B) and D)
F) All of the above A

Question 17

Emma is evaluating a lock-box system that will reduce float by 4 days.The firm has annual sales of $52 million and an opportunity cost of 15%.If the lock-box system is adopted,what is the amount of funds released?

Accepted Answer

A)   $ 85,479.45
B)   $ 142,465.75
C)   $ 21,369.86
D)   $ 569,863.01E) None of the above
F) A) and B)

Question 18

Your cost of capital is 8% and you are offered a discount of 1% for early payment,otherwise the entire amount is due in 60 days.How many days after purchase will cause you to be indifferent between taking the discount and not taking the discount?

Accepted Answer

A)   46.08 days
B)   21.69 days
C)   13.91 days
D)   60 daysE) B) and C)
F) A) and D)

Question 19

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?

Accepted Answer

A)   4.25%
B)   4.34%
C)   4.40%
D)   4.15%E) A) and B)
F) A) and C)

Question 20

A business such as a restaurant,that receives local checks,cash,and debit card payments is more likely to utilize a(n)

Accepted Answer

A)   field-banking system for collections.
B)   mail-based system for collections.
C)   electronic system for collections.
D)   lockbox system for collections.E) B) and C)
F) B) and D)

Exam 17: Cash, payables, and Liquidity Management

Place the following in the correct order of priority for selecting short-term investments:

Correct Answer
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Correct Answer
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B

Correct Answer
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Which of the following credit terms has the highest relevant cost?

Correct Answer
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Purchasing (or procurement) cards are designed to:

Correct Answer
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Roxy is evaluating a Treasury Bill.It is a $1 million face value with a discount of 2.75% and maturing in 182 days.What is the money market yield?

Correct Answer
verified

Correct Answer
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The time between receipt of the payment and its deposit into the firm's account is

Correct Answer
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B

Which of the following statements concerning mail-based collection systems is true?

Correct Answer
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Special post office boxes set up by the firm to expedite the receipt and processing of its accounts receivables are called

Correct Answer
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The amount of time that it takes for a check to clear through the banking system is called

Correct Answer
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An unsigned check drawn on one of the firm's bank accounts and deposited in another of the firm's bank accounts is

Correct Answer
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Your cost of capital is 16% and you are offered credit terms of 1/10 net 60.Do you take the discount or not and why?

Correct Answer
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Correct Answer
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Which of the following are listed as a common fraud prevention measures?

Correct Answer
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Correct Answer
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A

Emma is evaluating a lock-box system that will reduce float by 4 days.The firm has annual sales of $52 million and an opportunity cost of 15%.If the lock-box system is adopted,what is the amount of funds released?

Correct Answer
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Your cost of capital is 8% and you are offered a discount of 1% for early payment,otherwise the entire amount is due in 60 days.How many days after purchase will cause you to be indifferent between taking the discount and not taking the discount?

Correct Answer
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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?

Correct Answer
verified

A business such as a restaurant,that receives local checks,cash,and debit card payments is more likely to utilize a(n)

Correct Answer
verified

Exam 17: Cash, payables, and Liquidity Management

Place the following in the correct order of priority for selecting short-term investments:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedB

Correct AnswerverifiedShow Answer

Which of the following credit terms has the highest relevant cost?

Correct AnswerverifiedShow Answer

Purchasing (or procurement) cards are designed to:

Correct AnswerverifiedShow Answer

Roxy is evaluating a Treasury Bill.It is a $1 million face value with a discount of 2.75% and maturing in 182 days.What is the money market yield?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The time between receipt of the payment and its deposit into the firm's account is

Correct AnswerverifiedB

Which of the following statements concerning mail-based collection systems is true?

Correct AnswerverifiedShow Answer

Special post office boxes set up by the firm to expedite the receipt and processing of its accounts receivables are called

Correct AnswerverifiedShow Answer

The amount of time that it takes for a check to clear through the banking system is called

Correct AnswerverifiedShow Answer

An unsigned check drawn on one of the firm's bank accounts and deposited in another of the firm's bank accounts is

Correct AnswerverifiedShow Answer

Your cost of capital is 16% and you are offered credit terms of 1/10 net 60.Do you take the discount or not and why?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following are listed as a common fraud prevention measures?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedA

Emma is evaluating a lock-box system that will reduce float by 4 days.The firm has annual sales of $52 million and an opportunity cost of 15%.If the lock-box system is adopted,what is the amount of funds released?

Correct AnswerverifiedShow Answer

Your cost of capital is 8% and you are offered a discount of 1% for early payment,otherwise the entire amount is due in 60 days.How many days after purchase will cause you to be indifferent between taking the discount and not taking the discount?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

A business such as a restaurant,that receives local checks,cash,and debit card payments is more likely to utilize a(n)

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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B

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B

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A

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