You are an analyst in the Treasurer's department with Wilson Inc , a multinational corporation with its primary bank account in the U S and 3 other secondary accounts at other banks in the U S You have been tasked with answering questions for the head of the Department on a few key concerns Below are the numbers you requested to help in answering the questions U S BANKING INFORMATION Monthly average ledger balance at U S Bank $3,500,000 00 Monthly average deposit float $750,000 00 Monthly Service Charge US Bank $1,000 00 Earnings Credit Rate US Bank 0 007 Required Reserves Ratio 0 03 30 365 0 0822 Wire Transfer Cost $15 ACH cost $0 50 INFO ON COLLECTIONS FROM CUSTOMERS Number of remittances per month 9000 Average face value of monthly remittances $25,000 00 Mail float in house processing 2 Processing float in house processing 2 Availability float in house processing 2 Days float 6 Per check Variable cost of in house Processing 0 4 Fixed Cost of in house check processing $2,500 00 Days float with lockbox alternative 4 Per check variable cost of lockbox alternative 0 8 Fixed Cost of lockbox alternative $3,000 00 INFO ON DISBURSEMENTS TO SUPPLIERS Disbursements per year 3500 Check cost per check $1 50 ACH costs per check $0 50 upfront cost to switch fully to ACH system $25,000 DAILY NET CASH FLOWS (10 days into November) Day Net Cash Flow 1 18000 2 20000 3 23000 4 25000 5 26000 6 35000 7 32000 8 25000 9 26000 10 27000 MONTHLY SALES FORECASTS INFORMATION October sales $500,000 00 of sales collected in month of sale 0 7 of sales collected in following month 0 3 of sales in Cost of goods sold 0 75 Monthly lease payment $125,000 00 Cash position end of October $120,000 00 Target cash balance $80,000 00 Sales forecast for November $450,000 00 Sales forecast for December $350,000 00 MISCELLANEOUS INFO Company's Discount Rate 12 Question 1 What is the monthly collected balance for Wilson's at it's US bank a $3,500,000 b $2,750,000 c $1,500,000 d $2,500,000 4 points QUESTION 2 What is the monthly earnings credit for Wilson's at it's US bank a $1534 73 b $1123 43 c $1000 50 d $750 23 4 points QUESTION 3 What collected balance is required to ensure that Wilson's service charges are always offset by the earnings credit a $1,237,666 45 b $1,500,250 c $1,791,850 76 d $1,915,000 25 4 points QUESTION 4 Suppose a second bank offers Wilsons an earnings credit rate of 90 What would be the difference in the earnings credits between the 2 banks a $300 00 b $438 49 c $1973 22 d None of the above 4 points QUESTION 5 The company wants to start transferring funds to their other banks in order to reduce the opportunity costs of idle funds As they consider which transfer method to use, which of the following factors would decrease the minimum transfer amount to justify using the wire transfer method a Decrease in the cost of a wire b Decrease in the opportunity cost of funds c Decrease in the cost of an ACH d Increase in the cost of a wire 4 points QUESTION 6 What is the minimum transfer balance that justifies a wire transfer a approximately $26,750 b approximately $46,750 c approximately $125,550 d None of the options 4 points QUESTION 7 What is the cost of using the internal collections system for collecting remittances from customers a approximately $450,000 b approximately $350,000 c approximately $250,000 d approximately $1450,000 4 points QUESTION 8 What is the cost of using the lockbox alternative a approximately $254,000 b approximately $501,000 c approximately $306,000 d approximately $901,000 4 points QUESTION 9 Suppose the company's cost of capital or discount rate falls to 8 What is the cost of using the internal collections system for collecting remittances from customers a approximately $205,000 b approximately $302,000 c approximately $256,000 d approximately $371,000 4 points QUESTION 10 Suppose the company's cost of capital or discount rate falls to 8 What is the cost of using the lockbox alternative for collecting remittances from customers a approximately $207,500 b approximately $307,500 c approximately $307,600 d approximately $407,500 4 points QUESTION 11 Suppose that the bank sends an update of its lockbox service information stating that the days float could actually be reduced to 2 days What would the total cost of the lockbox alternative be in that case Assume the discount rate is 12 a approximately $158,000 b approximately $291,000 c approximately $175,000 d approximately $301,000 4 points QUESTION 12 A new analyst at the company has some questions about float Answer the following three questions for them Which of the following factors tends to reduce or eliminate the use of float a lenient credit policies b large cash balances c electronic funds transfers d high interest rates 4 points QUESTION 13 Float is the term given to differences between the cash balance and the balance of cash plus marketable securities delay in the receipt and conversion of a check to cash the period between the date an invoice is received and the date on which it must be paid the practice of deliberately delaying payments beyond the due date 4 points QUESTION 14 Which of the following refers to the period between the receipt and deposit of a check a Processing float b slippage float c Mail float d Availability float 4 points QUESTION 15 What is the NPV to Wilson's if it switches to a fully ACH disbursement system Assume that discount rate is 12 a $24,522 b $36,917 c $57,850 d $4,167 4 points QUESTION 16 What is NPV if the firm had as many as 5000 disbursements to process with the ACH disbursement system Assume that discount rate is 12 a $16,667 b $57,635 c $21,290 d $70,650 4 points QUESTION 17 Centralized disbursing results in the following EXCEPT a Lower banking costs b More autonomy for local purchasing managers c Improved cash flow forecast d Reduced fraud 4 points QUESTION 18 Your boss is preparing to give a presentation and wants to know how best to refer to the overall manner in which the firms financial obligations are settled or paid Which one of the following terms would be best a Comprehensive payables b Collection policy c Disbursement policy d Concentration

Question: You are an analyst in the Treasurer's department with Wilson Inc., a multinational corporation with its primary bank account in the U.S. and 3 other

You are an analyst in the Treasurer's department with Wilson Inc., a multinational corporation with its primary bank account in the U.S. and 3 other secondary accounts at other banks in the U.S. You have been tasked with answering questions for the head of the Department on a few key concerns. Below are the numbers you requested to help in answering the questions.

U.S. BANKING INFORMATION
Monthly average ledger balance at U.S. Bank	$3,500,000.00
Monthly average deposit float	$750,000.00
Monthly Service Charge_US Bank	$1,000.00
Earnings Credit Rate_ US Bank	0.007
Required Reserves Ratio	0.03
30/365	0.0822
Wire Transfer Cost	$15
ACH cost	$0.50

INFO ON COLLECTIONS FROM CUSTOMERS
Number of remittances per month	9000
Average face value of monthly remittances	$25,000.00
Mail float - in house processing	2
Processing float - in house processing	2
Availability float - in house processing	2
Days float	6
Per check Variable cost of in-house Processing	0.4
Fixed Cost of in-house check processing	$2,500.00
Days float with lockbox alternative	4
Per check variable cost of lockbox alternative	0.8
Fixed Cost of lockbox alternative	$3,000.00
INFO ON DISBURSEMENTS TO SUPPLIERS
Disbursements per year	3500
Check cost_ per check	$1.50
ACH costs_ per check	$0.50
upfront cost to switch fully to ACH system	$25,000
DAILY NET CASH FLOWS (10 days into November)
Day	Net Cash Flow
1	18000
2	20000
3	23000
4	25000
5	26000
6	35000
7	32000
8	25000
9	26000
10	27000
MONTHLY SALES FORECASTS INFORMATION
October sales	$500,000.00
% of sales collected in month of sale	0.7
% of sales collected in following month	0.3
% of sales in Cost of goods sold	0.75
Monthly lease payment	$125,000.00
Cash position end of October	$120,000.00
Target cash balance	$80,000.00
Sales forecast for November	$450,000.00
Sales forecast for December	$350,000.00
MISCELLANEOUS INFO
Company's Discount Rate	12%

Question 1: What is the monthly collected balance for Wilson's at it's US bank

	a.	$3,500,000
	b.	$2,750,000
	c.	$1,500,000
	d.	$2,500,000

4 points

QUESTION 2

What is the monthly earnings credit for Wilson's at it's US bank?
a.
$1534.73
b.
$1123.43
c.
$1000.50
d.
$750.23

4 points

QUESTION 3

What collected balance is required to ensure that Wilson's service charges are always offset by the earnings credit?
a.
$1,237,666.45
b.
$1,500,250
c.
$1,791,850.76
d.
$1,915,000.25

4 points

QUESTION 4

Suppose a second bank offers Wilsons an earnings credit rate of .90%. What would be the difference in the earnings credits between the 2 banks?
a.
$300.00
b.
$438.49
c.
$1973.22
d.
None of the above

4 points

QUESTION 5

The company wants to start transferring funds to their other banks in order to reduce the opportunity costs of idle funds. As they consider which transfer method to use, which of the following factors would decrease the minimum transfer amount to justify using the wire transfer method?
a.
Decrease in the cost of a wire
b.
Decrease in the opportunity cost of funds
c.
Decrease in the cost of an ACH
d.
Increase in the cost of a wire

4 points

QUESTION 6

What is the minimum transfer balance that justifies a wire transfer?
a.
approximately $26,750
b.
approximately $46,750
c.
approximately $125,550
d.
None of the options.

4 points

QUESTION 7

What is the cost of using the internal collections system for collecting remittances from customers?
a.
approximately $450,000
b.
approximately $350,000
c.
approximately $250,000
d.
approximately $1450,000

4 points

QUESTION 8

What is the cost of using the lockbox alternative?
a.
approximately $254,000
b.
approximately $501,000
c.
approximately $306,000
d.
approximately $901,000

4 points

QUESTION 9

Suppose the company's cost of capital or discount rate falls to 8%. What is the cost of using the internal collections system for collecting remittances from customers?
a.
approximately $205,000
b.
approximately $302,000
c.
approximately $256,000
d.
approximately $371,000

4 points

QUESTION 10

Suppose the company's cost of capital or discount rate falls to 8%. What is the cost of using the lockbox alternative for collecting remittances from customers?
a.
approximately $207,500
b.
approximately $307,500
c.
approximately $307,600
d.
approximately $407,500

4 points

QUESTION 11

Suppose that the bank sends an update of its lockbox service information stating that the days float could actually be reduced to 2 days. What would the total cost of the lockbox alternative be in that case? [Assume the discount rate is 12%]
a.
approximately $158,000
b.
approximately $291,000
c.
approximately $175,000
d.
approximately $301,000

4 points

QUESTION 12

A new analyst at the company has some questions about float. Answer the following three questions for them.
Which of the following factors tends to reduce or eliminate the use of float?
a.
lenient credit policies
b.
large cash balances.
c.
electronic funds transfers.
d.
high interest rates

4 points

QUESTION 13

"Float" is the term given to

		differences between the cash balance and the balance of cash plus marketable securities.
		delay in the receipt and conversion of a check to cash.
		the period between the date an invoice is received and the date on which it must be paid.
		the practice of deliberately delaying payments beyond the due date.

4 points

QUESTION 14

Which of the following refers to the period between the receipt and deposit of a check?
a.
Processing float
b.
slippage float
c.
Mail float
d.
Availability float

4 points

QUESTION 15

What is the NPV to Wilson's if it switches to a fully ACH disbursement system? [Assume that discount rate is 12%.]
a.
$24,522
b.
$36,917
c.
$57,850
d.
$4,167

4 points

QUESTION 16

What is NPV if the firm had as many as 5000 disbursements to process with the ACH disbursement system? [Assume that discount rate is 12%.]
a.
$16,667
b.
$57,635
c.
-$21,290
d.
-$70,650

4 points

QUESTION 17

Centralized disbursing results in the following EXCEPT __________?
a.
Lower banking costs
b.
More autonomy for local purchasing managers
c.
Improved cash flow forecast
d.
Reduced fraud

4 points

QUESTION 18

Your boss is preparing to give a presentation and wants to know how best to refer to the overall manner in which the firm’s financial obligations are settled or paid. Which one of the following terms would be best?
a.
Comprehensive payables
b.
Collection policy
c.
Disbursement policy
d.
Concentration

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	a.	Decrease in the cost of a wire
	b.	Decrease in the opportunity cost of funds
	c.	Decrease in the cost of an ACH
	d.	Increase in the cost of a wire

	a.	approximately $26,750
	b.	approximately $46,750
	c.	approximately $125,550
	d.	None of the options.

	a.	approximately $450,000
	b.	approximately $350,000
	c.	approximately $250,000
	d.	approximately $1450,000

	a.	approximately $254,000
	b.	approximately $501,000
	c.	approximately $306,000
	d.	approximately $901,000

	a.	approximately $205,000
	b.	approximately $302,000
	c.	approximately $256,000
	d.	approximately $371,000

	a.	approximately $207,500
	b.	approximately $307,500
	c.	approximately $307,600
	d.	approximately $407,500

	a.	approximately $158,000
	b.	approximately $291,000
	c.	approximately $175,000
	d.	approximately $301,000

	a.	lenient credit policies
	b.	large cash balances.
	c.	electronic funds transfers.
	d.	high interest rates

	a.	Processing float
	b.	slippage float
	c.	Mail float
	d.	Availability float

	a.	Lower banking costs
	b.	More autonomy for local purchasing managers
	c.	Improved cash flow forecast
	d.	Reduced fraud

	a.	$1534.73
	b.	$1123.43
	c.	$1000.50
	d.	$750.23

	a.	$1,237,666.45
	b.	$1,500,250
	c.	$1,791,850.76
	d.	$1,915,000.25

	a.	$300.00
	b.	$438.49
	c.	$1973.22
	d.	None of the above

	a.	$16,667
	b.	$57,635
	c.	-$21,290
	d.	-$70,650

	a.	Comprehensive payables
	b.	Collection policy
	c.	Disbursement policy
	d.	Concentration