Chapter 17 Cash, Receivables, and Inventory Management

61) When a corporation designs an investment strategy for investing temporary excess cash balances in marketable securities, it must consider a variety of factors. Which of the following is the most important?

A) maintaining the safety of principal

B) maintaining the greatest float

C) achieving the highest yield

D) illiquidity

62) What is the greatest risk associated with cash management?

A) yields

B) insolvency

C) holding too much cash

D) managing float

63) Cash management system objectives include

A) maintaining sufficient cash to meet disbursal needs.

B) maintaining idle cash balances at "doomsday event" levels.

C) maintaining accounts payable balances at zero by early bill payment.

D) all of the above are objectives of the system.

64) A lockbox system can reduce all of the following elements of float EXCEPT

A) mail float.

B) processing float.

C) transit float.

D) disbursing float.

65) The benefits of a lockbox system include all of the following EXCEPT

A) increased working cash.

B) elimination of clerical functions.

C) increase in total float.

D) early knowledge of dishonored checks.

66) Which of the following is used to manage a firm's cash disbursements?

A) lockbox system

B) bankers' acceptances

C) repurchase agreements

D) zero balance accounts

67) A company with national sales but only one large manufacturing operation and one administrative headquarters located in the same large northeastern city would most likely use which of the following techniques for cash management?

A) lockbox system

B) zero balance accounts

C) payable-through drafts

D) bankers' acceptances

68) Centralized control over disbursements is assisted by which of the following cash management techniques?

A) lockbox system

B) zero balance accounts

C) payable-through drafts

D) both B and C

69) Flashbinder Guitars, Inc. is considering a lockbox system that will increase its check processing cost by $.15 per check. The company estimates an average check size of $1,700 and expects the lockbox to reduce check collection time by 3 days. What annual before-tax yield must Flashbinder Guitars, Inc. earn on its marketable securities for the lockbox system to be beneficial?

A) 1.825%

B) 1.118%

C) 1.074%

D) 0.735%

70) Flashbinder Guitars, Inc. is negotiating with the bank for a lockbox system that is expected to reduce check collection time by 4 days. Flashbinder Guitars' average check size is $1,200 and any funds freed up by the new system will be invested in a money market account that is currently paying 2.5% annually. What is the most Flashbinder Guitars should be willing to pay the bank for the lockbox service, assuming the bank charges a per-check processing fee?

A) 20.500 cents

B) 29.767 cents

C) 30.726 cents

D) 32.877 cents