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Exam 17: Cash, payables, and Liquidity Management

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Question 21

Multiple Choice

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Which of the following has the greatest potential to be the longest?

A) mail float
B) processing float
C) availability float
D) clearing float

E) A) and B)
F) A) and C)

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Question 22

Multiple Choice

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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%

E) B) and C)
F) A) and D)

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Question 23

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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?

Louis is evaluating a Treasury Bill.It is a $1 million face value with a discount of 3.25% and maturing in 182 days.What is the money market yield?

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?

Dilly Deli, Inc., a nation-wide chain of deli-style restaurants, has built a $34,000 balance in one of its regional bank accounts. It wishes to move $30,000 to its main concentration account. A DTC cost $1.50 and requires 3 days to clear; an EDT costs $3.00 but requires only 1 day to clear; and a wire transfer costs $15 and clears the same day. Dilly Deli, Inc. can earn 7% on short term investments. -If the earnings rate for Dilly Deli,Inc.is 3%,which of the following is true?

National Groceries chooses to have it local stores make payments on their own payables.National utilizes a

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?

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. -Bavarian Brew is contemplating implementing a collection system that would decrease the collection float by 2.5 days.What would be the annual benefit of that system?

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 value of funds released?

In which situation below would a lock-box system likely produce greater benefits?

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%?

Near-cash assets in the form of short-term investments are often called

Smith Enterprise has a one year credit line of $5,000,000 with Second Bank.On average Smith uses half of the credit line.Second Bank charges a .67% commitment fee on the unused portion of the line and the interest rate is set at LIBOR +2%.Assuming that the LIBOR is currently at 4.3%,what is Smith's effective borrowing rate?

A bank service that provides early notification of checks that will be presented against a company's account on a given day is called

Most money market mutual funds set their net asset value at a fixed ____ per share.

The cash manager should seek to

Which of the following statements is a detailed invoice listing all checks cleared,account charges,lockbox charges,electronic transactions,etc.?

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

Purchasing (or procurement) cards are designed to: