The Baumol model is:

Multiple Choice

• Has one difference where the interest rate is substituted for the carrying cost per unit.

• Is based off linear regression models.

• Considers cash flows, cost per sale of security and the interest rate.

• Has one difference where the cost per security sale is substituted for the cost per order.

• The exact same as the EOQ model.

Allstar Inc. is considering a lockbox system that would reduce its float by three days. An expected 500 collections per day will be made to the lockbox with an average payment size of $1,000. The bank's charge for operating the lockboxes is $.30 per cheque. The interest rate is .015 percent per day. How much will Allstar save per day by having the lockbox?

Multiple Choice

• -$75

• $150

• $75

• $0

• $225

SML Co. has established a lower limit with regard to its cash balance holdings of $10,000. Its daily cash flows have a standard deviation of $5,000. The annual interest rate on marketable securities is 8 percent. The fixed cost per transaction of buying and selling securities is $12. Calculate the target cash balance.

Multiple Choice

• $10,000

• $11,883

• $11,412

• $14,236

• $17,746

The Trektronics store begins each week with 162 phasers in stock. This stock is depleted each week and reordered. The carrying cost per phaser is $26 per year and the fixed order cost is $50. What is the optimal order quantity?

Multiple Choice

• 127 phasers

• 66 phasers

• 94 phasers

• 180 phasers

• 25 phasers

Zoo Corp. has a chequing account ledger balance of $41,000, and after calling the bank, found that the bank balance was $47,000. A deposit of $5,000 was made this morning and has not yet been credited by the bank. What is the value of the cheques outstanding or payment float?

Multiple Choice

• $6,000

• -$1,000

• $11,000

• $1,000

• $5,000

Which of the following is false?

Multiple Choice

• Checks written by the firm generate payment float

• All of the answers are false.

• An objective of float management is to speed up the availability float

• Float management will succeed if the firm can collect late and pay early

• The difference between a bank's ledger balance and the firm's ledger balance is called float

A firm has a lower limit cash balance of $200 with a standard deviation of $50. The fixed cost per transaction is $8 and the interest rate per period is 0.5%. What is the target cash balance?

Multiple Choice

• $134

• $292

• $444

• $344

• $97

A firm has a lower limit cash balance of $200 with a standard deviation of $50. The fixed cost per transaction is $8 and the interest rate per period is 0.5%. What is the average cash balance?

Multiple Choice

• $152

• $192

• $227

• $87

• $134

As order size increases the total annual order costs:

Multiple Choice

• Is in determinant

• Stays the same

• Increases

• Is always equal to the total carrying costs

• Decreases

safety stocks of an inventory item should be carried when:

Multiple Choice

• demand or lead time is uncertain.

• fluctuation in demand is known with certainty.

• the lead time for delivery is known, certain, and non-zero.

• demand or lead time is certain.

• inventory can be ordered and received without delay

When interest rates are high:

Multiple Choice

• In determinant

• Hold smaller average cash balances

• Has no effect on the average cash balance

• Holding larger cash balances is always a bad idea

• Hold larger average cash balances

AU Corp. is considering a lockbox system that would reduce its float by two days. Collections average $125,000 per day. The interest rate is 6 percent per year and the bank charges $10 per day for the lockbox system. How much will AU Corp. save per day by having the lockbox?

Multiple Choice

• $31.10

• $51.10

• $10.55

• $41.10

• $20.55

MJK Co. has established a lower limit with regard to its cash balance holdings of $500. Its daily cash flows have a standard deviation of $200. The annual interest rate on marketable securities is 5 percent. The fixed cost per transaction of buying and selling securities is $10. Calculate the target cash balance.

Multiple Choice

• $800

• $743

• $1,045

• $500

• $682

One reason why firms hold cash is in anticipation of taking advantage of unforeseen opportunities. This is called:

Multiple Choice

• meeting transaction needs.

• hedging against uncertainty.

• the liquidity requirement.

• arbitrage.

• Speculation

The target cash balance should be located:

Multiple Choice

• one-third of the distance from the lower to the upper limit.

• halfway between the upper and lower limits.

• at the upper limit.

• one-third of the distance from the upper to the lower limit.

• at the lower limit.

A firm has a lower limit cash balance of $200 with a standard deviation of $50. The fixed cost per transaction is $8 and the interest rate per period is 0.5%. What is the upper cash limit?

Multiple Choice

• $511

• $901

• $385

• $484

• $632

A firm uses the Miller-Orr model with a minimum balance of $170, a maximum of $375 and a target balance of $290. If the cash balance hits $450, what will the firm do?

Multiple Choice

• Buy $75 in marketable securities

• Buy $205 in marketable securities

• Sell $160 in marketable securities

• Sell $75 in marketable securities

• Buy $160 in marketable securities