Quick Quiz 1

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1		Marketable securities cannot be readily used to satisfy __________. I.speculative needs II.precautionary needs III.transactions needs
			A)	I and II only
			B)	II and III only
			C)	I only
			D)	III only
			E)	I, II, and III only
2		CBA, Inc., a leading retailer of consumer goods, keeps excess cash on hand in October to pay for its increase in inventory prior to the holiday season. CBA is keeping this cash for:
			A)	Speculative reasons.
			B)	Collateral reasons.
			C)	Precautionary reasons.
			D)	Compensating balance reasons.
			E)	Transactions reasons.
3		Martin's Methods, an educational training firm, has taken steps to reduce the time taken to process the checks received from its customers from 4 days to 2. Additionally, the firm has switched banks, as its prior bank made funds available for withdrawal 2 days after deposit, while the new bank makes deposits available after only 1 day. All else the same, these steps should __________ the firm's __________ float.
			A)	increase; net
			B)	decrease; net
			C)	increase; collection
			D)	decrease; disbursement
			E)	not change; net
4		In the Miller-Orr model of cash management a firm must do each of the following EXCEPT:
			A)	Determine the upper cash balance limit.
			B)	Determine the cost per transaction of buying and selling securities.
			C)	Determine the opportunity cost of holding cash.
			D)	Determine the variance of the cash flow per period.
			E)	Determine the firm's required safety stock of cash.
5		Which of the following statements is/are true regarding the BAT and Miller-Orr cash management models? I.As a rule, the higher the interest rate, the lower is the target cash balance. II.As a rule, the lower the uncertainty of cash flows, the higher the target cash balance. III.As a rule, the higher the fixed cost of trading securities, the higher the target cash balance.
			A)	I only
			B)	II only
			C)	I and III only
			D)	III only
			E)	II and III only

Use the following information to answer the next three questions.
The Lawrence Stone-Age Pottery Co. receives 50 checks per month from customers. Average payments and clearing times are as follows: 5 checks for $21,000, 2 days; 15 checks for $58,000, 3 days; 25 checks for $37,000, 4 days; and 5 checks for $10,000, 5 days. Assume a 30 day month.

6		What are the average daily receipts?
			A)	$65,000
			B)	$39,102
			C)	$56,267
			D)	$31,676
			E)	$68,901
7		What is the weighted average delay in receiving the funds?
			A)	5.93 days
			B)	5.01 days
			C)	4.23 days
			D)	3.47 days
			E)	2.98 days
8		What is the average daily float?
			A)	$164,561
			B)	$225,550
			C)	$204,321
			D)	$175,093
			E)	$238,275

Use the Miller-Orr model and the following information to answer the next two questions.
Schulte Fashions begins every month with a cash balance of $8,000 which it depletes by the end of the month. The current market rate of return is 0.4% per month. Schulte is charged a fee of $20 each time it is forced to raise cash. In addition, history has shown that the monthly standard deviation of cash flows is $1,500. The firm has targeted a lower cash limit of $2,500.

9		What is the optimal initial cash balance for Schulte Fashion?
			A)	$3,266
			B)	$3,105
			C)	$4,536
			D)	$3,827
			E)	$4,727
10		At what level of cash would Schulte choose to remove cash from the account and invest in marketable securities?
			A)	$8,608
			B)	$6,989
			C)	$4,727
			D)	$4,536
			E)	$3,827