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 Which of the following is true? Multiple Choice None of the answers are true. An objective of float management is to speed up the availability float The difference between a bank's ledger balance and the firm's ledger balance is called float Checks written by the firm generate payment float All of the answers are true Bell Manufacturing uses 16,000 switch assemblies per month and then reorders another 16,000. The relevant carrying cost per switch assembly is $3 per year and the fixed order cost is $80. What is the optimal order quantity? Multiple Choice 120 3,200 16,000 14,400 924 The opportunity cost of holding cash is the: Multiple Choice interest rate inflation rate tax rate WACC cost of equity When the cost per security sale is high you should: Multiple Choice Has no effect on the average cash balance In determinant Hold larger average cash balances Holding larger cash balances is always a bad idea Hold smaller average cash balances At the optimal order quantity the total order costs and the total carrying costs will be: Multiple Choice The order costs are always lower than the carrying costs Unequal Equal Unable to determine as it caries from problem to problem The order costs are always higher than the carrying costs Botany Corp. uses up cash at a rate of $3,000,000 per year. The interest rate is 5 percent and each sale of securities costs $25. What is the optimal amount of securities that should be sold each time to minimize the cost of investing cash? Multiple Choice $10,954 $5,477 $54,772 $189,737 $38,730 Finding the optimal amount of cash balances is important to all firms because: Multiple Choice the WACC depends on the optimal cash balance. there are both benefits and costs to liquidity. interest rates on marketable securities change. they need to purchase marketable securities. of maintaining the float. A place to invest idle cash is the: Multiple Choice Any market can be used. money market long bond market stock market derivatives market Carrying costs are: Multiple Choice Cost to place the order Cost of space, spoilage, theft, insurance Cost of interest only Lost sales costs Cost of capital only One advantage of maintaining high inventory level is: Multiple Choice the possibility of lost sales is reduced. little capital will be tied up in inventory. the danger of obsolescence is minimized. storage costs are reduced. loss from theft is minimized. Assume that a firm makes payments of $400 a day, which take an average of four days to clear, and that it receives $750 a day in cheques, which take an average of three days to clear. Calculate the firm's net float. Multiple Choice -$2,250 -$650 $2,250 $650 $1,600 A firm should set the upper and lower limits on its cash balances close together if: Multiple Choice the uncertainty of cash flows is high. the cost of buying and selling securities is high. All of the answers are correct. the day-to-day variability of cash flows is large. the rate of interest is high. Zoo Corp. uses up cash at a rate of $100,000 per month. The interest rate is 7 percent and each sale of securities costs $30. What is the optimal amount of securities that should be sold each time to minimize the cost of investing cash? Multiple Choice $6,547 $7,483 $32,071 $42,857 $3,207 As order size increases the total annual order costs: Multiple Choice Decreases Is in determinant Increases Is always equal to the total carrying costs Stays the same Which of the following would not be an effective way to reduce the net float? Multiple Choice Introduce a lockbox system Mail payment cheques from remote locations All of the choices would reduce the net float Maintain a zero-balance account Arrange preauthorized payments with customers When cash flows increase: Multiple Choice The optimal level of cash increases more than proportionally The optimal level of cash increases proportionally Will cause a decrease to the optimal level of cash In determinat The optimal level of cash increases less than proportionally Which money market security is a very short term, collateralized loan? Multiple Choice Commercial Paper Repurchase agreements Certificates of deposit Treasury Bills Banker's acceptances _________ is a time deposit at a bank, usually in denominations greater than $100,000, which pays interest and principal only at maturity. Multiple Choice Commercial Paper Repurchase agreements Treasury Bills Banker's acceptances Certificates of deposit