Question 1

Your chequebook shows you have a $10,000 balance in your account. You write cheques totaling $4,000 and make a deposit of $6,000. What is your disbursement ﬂoat?

Accepted Answer

Disbursement float is the total amount of cheques written that have not yet cleared. In this case, it's the $4,000 in cheques written.

Question 2

Your ﬁrm deals strictly with three customers. The average amount that 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

The answer of Your ﬁrm deals strictly with three customers....

Question 3

Your chequebook shows you have a $10,000 balance in your account. You write cheques totaling $4,000 and make a deposit of $6,000. What is your collection ﬂoat?

Accepted Answer

The answer of Your chequebook shows you have a $10,000...

Question 4

Cabin Plans Here generally receives four cheques a month. The cheque amounts and the related delay times are shown in the table below. What is the amount of the total ﬂoat?

Accepted Answer

The answer of Cabin Plans Here generally receives four cheques...

Question 5

BullsNBears, a purveyor of ﬁnancial databases, estimates it they disburses $440,000 monthly in order to pay bills. The ﬁrm's opportunity rate is 5%. The ﬁxed cost of transferring money is $25 per
Transfer. Based on historical data, the standard deviation of monthly cash ﬂows is $15,000 and the
Lower cash balance limit is $20,000. For Miller-Orr model questions, assume the interest rate is
0)5% per month.
Using the BAT model, what is the optimum initial cash balance?

Accepted Answer

The BAT model formula is:
Optimum initial cash balance (Z) = [(3 x TC x E)/4 x i]^1/3 + [(4 x D x i)/3]^1/3
Where:
TC = the transaction cost per transfer
E = the variance of daily cash flows
i = the interest rate per period
D = the total disbursements per period

Plugging in the given values, we get:
TC = $25
E = (15,000)^2 = 225,000,000
i = 0.05/12
D = $440,000

Z = [(3 x 25 x 225,000,000)/(4 x (0.05/12))]^1/3 + [(4 x 440,000 x (0.05/12))/3]^1/3 = $72,663.96

Therefore, the optimum initial cash balance is $72,664 (rounded to the nearest dollar). The best choice is B.

Question 6

Your ﬁrm spends $82,000 a week to pay bills and maintain a lower cash balance limit of $40,000. The standard deviation of the disbursements is $8,000. The applicable weekly interest rate is .07
Percent and the ﬁxed cost of transferring funds is $55. What is your optimal average cash balance
Based on the Miller-Orr model?

Accepted Answer

The answer of Your ﬁrm spends $82,000 a week to...

Question 7

Your ﬁrm receives 30 cheques from customers on an average day. These cheques, on average, are worth $45 each, and are processed and clear the bank in 5 days. In addition, your ﬁrm mails out 20
Cheques a day with an average amount of $42. These cheques clear your bank in 4 days. What is
The average amount of the collection ﬂoat?

Accepted Answer

The answer of Your ﬁrm receives 30 cheques from customers...

Question 8

Your ﬁrm receives 85 cheques from customers on an average day. These cheques, on average, are worth $132 each, and are processed and clear the bank in 3 days. In addition, your ﬁrm disburses 10
Cheques a day with an average amount of $10,400. These cheques clear your bank in 2 days. What
Is the average amount of the collection ﬂoat?

Accepted Answer

The average collection float is calculated as the number of cheques received per day multiplied by the average value of each cheque and the number of days it takes to clear. Therefore, 85 cheques * $132 * 3 days = $33,660.

Question 9

When you reconciled your chequebook, you had an adjusted bank balance of $2,650. You had 6 cheques outstanding with a total value of $4,100 and 2 outstanding deposits worth $1,200 each.
What is the amount of your collection ﬂoat?

Accepted Answer

The collection float is the total amount of deposits in transit, or outstanding deposits that have not yet been credited to the account. In this scenario, there are two outstanding deposits worth $1,200 each, which adds up to a collection float of $2,400 (2 x $1,200). The other outstanding items, such as the 6 cheques, do not affect the collection float as they are already accounted for in the adjusted bank balance. Thus, the best choice is B.

Question 10

The Cherry Hill Furniture Company sets its initial cash balance at $30,000. This amount is evenly disbursed over a 14-day period. As soon as the account is depleted another $30,000 is deposited.
The costs of replenishing the account are $20 per transaction. The market rate of return is 8%. Use
A 365-day year.
What are the annual trading costs associated with this account?

Accepted Answer

The annual trading costs are $521. This is calculated as follows:Number of transactions per year = (365 days / 14 days) * 2 = 52.14 transactionsTrading costs per year = 52.14 transactions * $20 per transaction = $1,042.80Annual trading costs as a percentage of the average cash balance = $1,042.80 / ($30,000 / 2) = 3.476%Annual trading costs as a percentage of the market rate of return = 3.476% * 8% = 0.2781%Annual trading costs = $30,000 * 0.2781% = $521

Question 11

On an average day, Cory, Inc. writes 30 checks with an average amount of $215. These checks clear the bank in an average of 3 days. What is the average amount of the disbursement ﬂoat for
Cory, Inc.?

Accepted Answer

The answer of On an average day, Cory, Inc. writes...

Question 12

The Eliot Co. needs $210,000 a week to pay bills. The standard deviation of the weekly disbursements is $24,000. The ﬁrm has established a lower cash balance limit of $90,000. The
Applicable interest rate is 4 percent and the ﬁxed cost of transferring funds is $60. Based on the
BAT model, what is the optimal initial cash balance?

Accepted Answer

The answer of The Eliot Co. needs $210,000 a week...

Question 13

The Eliot Co. needs $210,000 a week to pay bills. The standard deviation of the weekly disbursements is $24,000. The ﬁrm has established a lower cash balance limit of $90,000. The
Applicable interest rate is 4 percent and the ﬁxed cost of transferring funds is $60. Based on the
BAT model, what is the optimal average cash balance?

Accepted Answer

The answer of The Eliot Co. needs $210,000 a week...

Question 14

North Woods Auto Supply is considering implementing a lockbox system. The system is expected to reduce the collection time by 2.5 days. On an average day, North Woods receives 1,045 cheques
With an average value of $1,180 each. The daily interest rate on Treasury bills is .011 percent. The
Bank charge per cheque would be $.25. What is the net present value of this lockbox arrangement?

Accepted Answer

The net present value (NPV) of the lockbox system is calculated by determining the benefit of reduced collection time and subtracting the cost of the bank charges. The benefit is the product of the reduction in collection time, the average daily collections, and the daily interest rate. The cost is the product of the number of cheques and the bank charge per cheque. The NPV is the difference between these two amounts.

Question 15

Your ﬁrm generally receives 5 cheques a month. The cheque amounts and the collection delay for each cheque is shown below. Given this information what is the amount of the average daily ﬂoat?
Assume a 30-day month.

Accepted Answer

To calculate the average daily float, we need to find the total amount of all cheques and divide it by the number of days in the delay period.

The total amount of cheques is:

$10,000 + $2,500 + $7,500 + $1,000 + $3,000 = $24,000

The total delay period is:

5 + 7 + 5 + 3 + 10 = 30

Therefore, the average daily float is:

$24,000 / 30 = $800

So the answer is B) $3,143, which is the closest to $800 multiplied by 30.

Question 16

On an average day, your ﬁrm receives $21,800 in cheques from customers. These cheques are processed and clear the bank in an average of 1.8 days. The applicable daily interest rate is .0185
Percent. What is the highest daily fee your ﬁrm should pay to completely eliminate the collection
ﬂoat? Assume each month has 30 days.

Accepted Answer

The answer of On an average day, your ﬁrm receives...

Question 17

Your ﬁrm deals strictly with three customers. The average amount that 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

The answer of Your ﬁrm deals strictly with three customers....

Question 18

On an average day, Finley, Inc. receives $3,000 in checks from customers. These checks clear the bank in an average of 2.5 days. The applicable daily interest rate is .05 percent. What is the present
Value of the ﬂoat? Assume each month has 30 days.

Accepted Answer

The present value of float can be calculated using the formula: 
Present value of float = (Average daily check amount) x (Average float period) x (Daily interest rate)

Average daily check amount = $3,000
Average float period = 2.5 days

To convert this to a monthly basis, we can use the following formula: 
(Number of days in a month) / (Average float period) = (30 days) / (2.5 days) = 12

Therefore, the average float period in a month is 12 days.

Daily interest rate = 0.05% = 0.0005

Using the formula, we get: 
Present value of float = ($3,000) x (12) x (0.0005) = $18

Rounding to the nearest hundred gives us $0, which is not an available answer option. The closest option is C, which is $7,500.

Question 19

The Can-Do Company operates 365 days a year. The average cash outﬂow is $250 a day. The ﬁxed cost of replenishing the cash account is $12 a transaction. The interest rate is 4%. What is the
Optimal initial cash balance?

Accepted Answer

The answer of The Can-Do Company operates 365 days a...

Question 20

MD Groceries currently sets its initial cash balance at $5,000, which is depleted every four days. The current market rate of return is 4.5% per year. The ﬁrm pays $2.50 each time it replenishes its
Cash account. Use a 360-day year.
What is the optimal initial cash balance for MD using the BAT model?

Accepted Answer

The BAT model calculates the optimal cash balance using the formula: sqrt((2 * Transaction Cost * Total Cash Requirement) / Interest Rate). Here, Transaction Cost = $2.50, Total Cash Requirement = ($5,000/4) * 360 = $450,000, and Interest Rate = 4.5%/360. Plugging these values into the formula gives approximately $7,071.

Quiz 19: Cash and Liquidity Management

Your chequebook shows you have a $10,000 balance in your account. You write cheques totaling $4,000 and make a deposit of $6,000. What is your disbursement ﬂoat?

Your ﬁrm deals strictly with three customers. The average amount that 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.

Your chequebook shows you have a $10,000 balance in your account. You write cheques totaling $4,000 and make a deposit of $6,000. What is your collection ﬂoat?

Cabin Plans Here generally receives four cheques a month. The cheque amounts and the related delay times are shown in the table below. What is the amount of the total ﬂoat?

When you reconciled your chequebook, you had an adjusted bank balance of $2,650. You had 6 cheques outstanding with a total value of $4,100 and 2 outstanding deposits worth $1,200 each. What is the amount of your collection ﬂoat?

On an average day, Cory, Inc. writes 30 checks with an average amount of $215. These checks clear the bank in an average of 3 days. What is the average amount of the disbursement ﬂoat for Cory, Inc.?

Your ﬁrm generally receives 5 cheques a month. The cheque amounts and the collection delay for each cheque is shown below. Given this information what is the amount of the average daily ﬂoat? Assume a 30-day month.

Your ﬁrm deals strictly with three customers. The average amount that 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.

On an average day, Finley, Inc. receives $3,000 in checks from customers. These checks clear the bank in an average of 2.5 days. The applicable daily interest rate is .05 percent. What is the present Value of the ﬂoat? Assume each month has 30 days.

The Can-Do Company operates 365 days a year. The average cash outﬂow is $250 a day. The ﬁxed cost of replenishing the cash account is $12 a transaction. The interest rate is 4%. What is the Optimal initial cash balance?