Chapter 17 Cash, Receivables, and Inventory Management

81) Funds that are available in a company's bank account until its payment check has cleared refers to

A) mail float.

B) processing float.

C) transit float.

D) disbursing float.

82) Salamander Insurance Company tries to settle claims as quickly as possible. In certain cases, agents can present payments to claimants which are cleared through the banking system like a check, but must be passed through the Insurance Company for approved prior to payment. This is an example of a

A) zero balance account.

B) payable-through draft.

C) insurance float voucher.

D) post-dated check.

83) A way of managing a firm's cash disbursements would be through

A) zero balance accounts.

B) accounts receivable factoring.

C) lockbox system.

D) floating lien.

84) Float is best described by which of the below?

A) investing excess cash balances

B) the time required for a deposited check to clear through the commercial banking system and be available for payment

C) the term used to describe payment for the purchase of raw materials that are needed to complete production of a luxury liner

D) the time that is required to receive payment on a zero balance account

85) Assume that Federated Stores, whose credit card billings total $120 billion per year, were to implement a lockbox arrangement that would speed up the collection of its credit card billings by 2 full days. If Federated could earn 3.5% on its marketable securities, how much would the firm earn per year from such a lockbox arrangement? Assume a 365-day year.

A) $316.99 million

B) $244.58 million

C) $230.14 million

D) $183.50 million

86) Managing a firm's cash outflows through use of a "zero balance account" system offers all but which of the following benefits?

A) centralized control over disbursements

B) reduction of management time spent on superficial cash management activities

C) higher rate of return on invested funds

D) reduction of excess balances in outlying accounts

87) All of the following are false EXCEPT

A) the mail float is caused by the time lapse from the moment a firm receives the check and begins to process it.

B) the processing float is caused by the time necessary for a bank to process the check.

C) the transit float is caused by the time lapse from the moment a customer mails a check until the firm begins to process it.

D) the disbursing float derives from the fact that funds remain in a firm's bank account until its payment check is cleared through the banking system.

88) Lockbox arrangement benefits include

A) increased working capital from shorter receivables/cash transformation time.

B) elimination of bank charges for handling and audit functions.

C) increased cash flows from delays in uncollectible check processing.

D) all of the above are benefits from this arrangement.

89) The objectives of a zero balance account system for the firm include

A) reduce disbursing float.

B) achieve better control over its cash payments.

C) increase cash balances in regional rather than national banks.

D) all of the above are correct.

90) Compare the risk of a 90-day unsecured promissory note issued by Southwest Airlines to a 20-year U.S. Government Treasury Bond.

A) The Treasury Bond has a lower financial risk, but a higher interest rate risk.

B) The Treasury Bond has a lower financial risk and a lower interest rate risk.

C) The Treasury Bond has a lower interest rate risk, but higher financial risk.

D) The Treasury Bond has a higher interest rate risk, and a higher financial risk.