finance data bank

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 21^st 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