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Question;75. Theo's Bar & Grill needs $147,000 a week to;pay bills. The standard deviation of the weekly disbursements is $9,600. The;firm has established a lower cash balance limit of $40,000. The applicable;interest rate is 3.5 percent and the fixed cost of transferring funds is $45.;Based on the BAT model, what is the optimal average cash balance?;A. $36,199;B. $49,568;C. $70,100;D. $99,136;E. $112,400;76. Parkway Express needs $318,000 a week to pay;bills. The standard deviation of the weekly disbursements is $31,000. The firm;has established a lower cash balance limit of $60,000. The applicable interest;rate is 4.5 percent and the fixed cost of transferring funds is $65. Based on;the BAT model, what is the opportunity cost of holding cash?;A. $3,873;B. $4,918;C. $5,207;D. $109,283;E. $110,440;77. Penco Supply spends $428,000 a week to pay bills;and maintains a lower cash balance limit of $75,000. The standard deviation of;its disbursements is $18,900. The applicable interest rate is 5 percent and the;fixed cost of transferring funds is $65. What is the firm's optimal initial;cash balance based on the BAT model?;A. $150,600;B. $158,929;C. $170,096;D. $221,506;E. $240,553;78. Your firm spends $54,000 a week to pay bills and;maintains a lower cash balance limit of $45,000. The standard deviation of your;disbursements is $12,100. The applicable interest rate is 4.5 percent and the;fixed cost of transferring funds is $55. What is your opportunity cost of;holding cash based on the BAT model?;A. $1,318;B. $1,864;C. $2,204;D. $2,311;E. $3,709;79. Rosie O'Grady's spends $98,000 a week to pay bills;and maintains a lower cash balance limit of $95,000. The standard deviation of;the disbursements is $14,600. The applicable interest rate is 4.8 percent and;the fixed cost of transferring funds is $50. What is this firm's total cost of;holding cash based on the BAT model?;A. $1,431;B. $2,862;C. $3,034;D. $4,912;E. $4,946;80. Your firm spends $346,000 a week to pay bills and;maintains a lower cash balance limit of $150,000. The standard deviation of;your disbursements is $28,700. The applicable interest rate is 5 percent and;the fixed cost of transferring funds is $60. What is your optimal average cash;balance based on the BAT model?;A. $103,900;B. $146,500;C. $182,200;D. $207,800;E. $249,900;81. The Cow Pie Spreader Co. spends $214,000 a week to;pay bills and maintains a lower cash balance limit of $175,000. The standard;deviation of the disbursements is $16,000. The applicable weekly interest rate;is 0.025 percent and the fixed cost of transferring funds is $49. What is the;firm's cash balance target based on the Miller-Orr model?;A. $208,511;B. $247,560;C. $251,006;D. $254,545;E. $258,878;82. The Blue Moon Hotel and Spa spends $359,000 a week;to pay bills and maintains a lower cash balance limit of $250,000. The standard;deviation of the disbursements is $46,800. The applicable weekly interest rate;is 0.045 percent and the fixed cost of transferring funds is $60. What is the;hotel's optimal upper cash limit based on the Miller-Orr model?;A. $430,836;B. $447,905;C. $528,700;D. $739,459;E. $861,672;83. Donaldson, Inc. spends $94,000 a week to pay bills;and maintains a lower cash balance limit of $50,000. The standard deviation of;the disbursements is $13,000. The applicable weekly interest rate is 0.045;percent and the fixed cost of transferring funds is $52. What is your optimal;average cash balance based on the Miller-Orr model?;A. $78,778;B. $82,623;C. $231,969;D. $236,334;E. $247,868;84. The Burger Stop spends $52,000 a week to pay bills;and maintains a lower cash balance limit of $60,000. The standard deviation of;the disbursements is $7,500. The applicable weekly interest rate is 0.04;percent and the fixed cost of transferring funds is $50. What is your optimal;average cash balance based on the Miller-Orr model?;A. $79,116;B. $83,208;C. $110,315;D. $237,348;E. $249,624;85. Your firm spends $48,000 a week to pay bills and;maintains a lower cash balance limit of $50,000. The standard deviation of the;disbursements is $8,600. The applicable weekly interest rate is 0.054 percent;and the fixed cost of transferring funds is $65. What is your cash balance target;based on the Miller-Orr model?;A. $48,156;B. $49,990;C. $54,884;D. $68,830;E. $75,726;86. Travel Inn Express spends $109,000 a week to pay;bills and maintains a lower cash balance limit of $125,000. The standard;deviation of the disbursements is $14,400. The applicable weekly interest rate;is 0.039 percent and the fixed cost of transferring funds is $58. What is the;inn's cash balance target based on the Miller-Orr model?;A. $28,492;B. $31,359;C. $153,492;D. $156,359;E. $225,417;Essay Questions;87. Explain how a lockbox system operates and why a;firm might consider implementing such a system.;88. Explain how the Check Clearing Act for the 21st;Century affects both collection and disbursement float.;89. Explain how the unethical use of uncollected funds;has been impacted by the growth of on-line retailing and banking.;90. Float management systems may provide only minimal;benefits to a firm. Given that most firms have other projects with higher;positive net present values, why should a firm's managers spend time;implementing a float management system?;91. Explain what a zero-balance account is, how it is;used, and how it affects cash management.;Multiple;Choice Questions;92. Each business day, on average, a company writes;checks totaling $26,000 to pay its suppliers. The usual clearing time for the;checks is 5 days. Meanwhile, the company is receiving payments from its;customers each day, in the form of checks, totaling $40,000. The cash from the;payments is available to the firm after 2 days. What is the amount of the;firm's average net float?;A. $30,00;B. $50,000;C. $80,000;D. $110,000;E. $130,000;93. Purple Feet Wine, Inc. receives an average of;$6,000 in checks per day. The delay in clearing is typically 3 days. The;current interest rate is 0.025 percent per day. Assume 30 days per month. What;is the highest daily fee the company should be willing to pay to eliminate its;float entirely?;A. $1.50;B. $3.00;C. $3.75;D. $4.50;E. $6.00;94. Your neighbor goes to the post office once a month;and picks up two checks, one for $18,000 and one for $4,000. The larger check;takes 4 days to clear after it is deposited, the smaller one takes 6 days.;Assume 30 days per month. What is the weighted average delay?;A. 4.21 days;B. 4.36 days;C. 4.78 days;D. 5.00 days;E. 6.00 days;95. Your firm has an average receipt size of $60. A;bank has approached you concerning a lockbox service that will decrease your;total collection time by 1 day. You typically receive 28,000 checks per day.;The daily interest rate is 0.016 percent. What is the NPV of the lockbox;project if the bank charges a fee of $210 per day?;A. $367,500;B. $427,500;C. $903,350;D. $1,412,500;E. $1,680,000;96. A mail-order firm processes 5,000 checks per month.;Of these, 55 percent are for $55 and 45 percent are for $65. The $55 checks are;delayed 2 days on average, the $65 checks are delayed 5 days on average. Assume;each month has 30 days. The interest rate is 6 percent per year. How much;should the firm be willing to pay to reduce the weighted average float by 1.4;days?;A. $4,165;B. $13,883;C. $41,650;D. $138,883;E. $416,500;97. Paper Submarine Manufacturing is investigating a;lockbox system to reduce its collection time. It has determined the following;The total collection time will be reduced by 2 days if the lockbox system is;adopted. What is the NPV of adopting the lockbox system?;A. $600,000;B. $775,000;C. $975,000;D. $1,200,000;E. $1,425,000;98. Home Roasted Turkeys disburses checks every 4;weeks that average $70,000 and take 5 days to clear. How much interest can the;company earn if it delays transfer of funds from an interest-bearing account;that pays 0.02 percent per day for these 5 days? Ignore the effects of compound;interest. Assume 52 weeks in a year.;A. $36;B. $91;C. $182;D. $364;E. $910;99. Never Again Enterprises has an agreement with The;Worth Bank whereby the bank handles $3.12 million in collections a day and;requires a $1,000,000 compensating balance. Never Again is contemplating;canceling the agreement and dividing its eastern region so that two other banks;will handle its business. Banks A and B will each handle $1.56 million of;collections a day, and each requires a compensating balance of $1,550,000.;Never Again's financial management expects that collections will be accelerated;by one day if the eastern region is divided. The T-bill rate is 5 percent;annually. What is the amount of the annual net savings if this plan is;adopted?;A. $10,200;B. $51,000;C. $76,500;D. $102,000;E. $125,000;100. Mountaintop Inns, a Kentucky company, has;determined that a majority of its customers are located in the Pennsylvania;area. It therefore is considering using a lockbox system offered by a bank;located in Pittsburgh, Pennsylvania. The bank has estimated that use of the;system will reduce collection time by one day. In addition to the variable;charge shown below, there is also a fixed charge of $4,320 per year for the;lockbox system. Assume a year has 365 days. What is the NPV of the lockbox;system given the following information?;A. -$156,727;B. -$131,301;C. -$74,208;D. $11,507;E. $26,433;101. Cow Chips, Inc., a large fertilizer distributor;based in California, is planning to use a lockbox system to speed up collections;from its customers located on the East Coast. A Philadelphia-area bank will;provide this service for an annual fee of $25,000 plus 10 cents per;transaction. The estimated reduction in collection and processing time is one;day. The average customer payment in this region is $8,200. Treasury bills are;currently yielding 5 percent per year. Assume a year has 365 days.;Approximately how many customers each day, on average, are needed to make the;system profitable for Cow Chips, Inc.?;A. 56;B. 67;C. 74;D. 83;E. 89

Paper#51112 | Written in 18-Jul-2015

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