Chapter 1, Problem 5Q

The opportunity cost of holding cash is inversely related to the level of market interest rates.   Question 9 options:   True   False

Your firm deals strictly with four 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. Customer Item Amount Delay A $8,500 5 days B $12,000 2 days C $16,000 3 days D $3,600 2 days   Question 8 options:   $8,448   $1,337   $3,342   $1,408   $10,025

Which of the following is true regarding cash management?   Question 7 options:   The basic objective in cash management is to keep the investment in cash as low as possible while still operating efficiently and effectively.   Effective cash management results in minimization of the total interest earnings involved with holding cash.   A cost of holding cash is the liquidity it gives the firm.   A firm should decrease its cash holdings as long as the NPV of doing so is negative.   A cost of holding cash is the interest income earned on the outstanding cash balance.

Low default risk is a characteristic of money market securities.   Question 6 options:   True   False

Jeep Corp. held large sums of cash during the mid-1990s primarily because it would need a large amount of cash in the event of a recession. This is a[n] _____ for holding cash.   Question 5 options:   Adjustment motive.   Compensating balances motive.   Speculative motive.   Transactions motive.   Precautionary motive.

With respect to the workings of a lockbox system, the cheque clearing process begins before the company even knows the payments have been received.   Question 4 options:   True   False

You are considering implementing a lockbox system for your firm. The system is expected to reduce the collection time by 1.5 days. On an average day, your firm receives 250 checks with an average value of $400 each. The daily interest rate on Treasury bills is .02%. What is the anticipated amount of the daily savings if this system is implemented?   Question 3 options:   $30   $25   $15   $20   $10

Disbursement float is virtually eliminated when payments are made electronically.   Question 2 options:   True   False

According to your cheque book, you have a $3,000 balance in your account. You write cheques totaling $4,500 and make a deposit of $3,500. Determine your net float.   Question 1 options:   $8,000   -$1,000   $0   $1,000   $4,000