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Exam 19: Behavioural Finance

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Question 51

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Your company has an available balance of $7,911.A deposit of $2,480 that was made this morning is not yet included in the bank's balance.There are also 4 checks outstanding with a value of $360 each.What is the net float?

A) net collection float of $1,040
B) net collection float of $2,480
C) net float of $6,731
D) net disbursement float of $1,300
E) net disbursement float of $2,480

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Question 52

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Cash concentration accounts:

A) tend to increase the funds available for short-term investing.
B) tend to increase the complexity of a firm's cash management system.
C) that utilize wire transfers rather than automated clearing house transfers are less expensive to maintain.
D) receive checks directly from all of a firm's customers.
E) are all zero-balance accounts.

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Question 53

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High Brow Express deals strictly with two customers.The average amount each customer pays per month along with the collection delay associated with each payment is shown below.Given this information, what is the weighted average delay? Assume that every month has 30 days.

Currently, your firm requires 2 days to process the checks which customers mail in to pay for their credit purchases.The average mail time associated with these payments is 3.4 days and the check clearing time is 2.1 days.If your firm adopts a lockbox system, the mail time will be cut in half.In addition, if employees are reassigned, checks could be processed the same day they are received.How long will your collection time be if both the lockbox system and the job reassignments are implemented?

A firm has $16,718 in outstanding checks that have not cleared the bank.The firm also has $13,450 in deposits that have been recorded by the firm but not by the bank.The current available balance is $11,407.What is the status of the net float?

Hot Tub Builders sells to three retail outlets.Each retailer pays once a month in the amounts shown below.The collection delay associated with each payment is also given below.What is the amount of the average daily receipts if you assume each month has 30 days?

Which of the following statements related to the BAT model is correct? I.The BAT model is used to determine the target cash balance for a firm. II.The BAT model is rarely used in business due to its complex nature. III.The BAT model is a model that helps eliminate a firm's collection float. IV.One disadvantage of the BAT model is the fact that it assumes all cash outflows are known with certainty.

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?

Which one of the following statements is correct?

Purple Feet Wine, Inc.receives an average of $6,000 in checks per day.The delay in clearing is typically 4 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?

The Miller-Orr model assumes that:

On an average day, Town Center Hardware receives $2,420 in checks from customers.These checks clear the bank in an average of 2.1 days.The applicable daily interest rate is 0.025 percent.What is the maximum amount this store should pay to completely eliminate its collection float? Assume each month has 30 days.

Float is defined as the:

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?

The Eliot Co.needs $185,000 a week to pay bills.The standard deviation of the weekly disbursements is $17,600.The firm has established a lower cash balance limit of $75,000.The applicable interest rate is 5.5 percent and the fixed cost of transferring funds is $47.Based on the BAT model, what is the optimal initial cash balance?

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?

Municipal bonds:

The Presque Isle Center has branch operations in three states.Each branch deals with a local bank.However, all excess funds in these branch bank accounts are transferred on a daily basis to the firm's primary bank located near the firm's home office.This routine of transferring cash to the primary bank on a regular basis is referred to as:

Which of the following variables are included in the BAT model? I.upper cash limit II.interest rate on marketable securities III.opportunity cost of holding cash IV.fixed cost of each securities trade

Which of the following will reduce collection time? I.billing customers electronically rather than by mail II.accepting debit cards but not checks as payment for a sale III.offering cash discounts for early payment IV.reducing the processing delay by one day