Quick Quiz 2

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1		It is important for any firm to determine its appropriate target cash balance:
			A)	In order to maximize their purchases of marketable securities.
			B)	Because of the fluctuation in interest rates on marketable securities.
			C)	Since most firms follow flexible policies of working capital management.
			D)	Because of the float the firm gains when it writes checks.
			E)	Because there is a trade-off between the benefit and cost of liquidity.
2		Which of the following is true regarding trading costs and the size of the firm's cash balance?
			A)	The lower the trading costs, the lower will be the firm's target cash balance in the BAT.
			B)	Trading costs will not change as the size of the cash balance is increased.
			C)	Total trading costs are inversely related to the fixed cost of making a securities trade.
			D)	The total cost to a firm of maintaining a specific cash balance is inversely related to the amount of trading costs incurred to maintain that balance.
			E)	Trading costs are irrelevant in determining the optimal cash balance in the Miller-Orr model, but not in other models.
3		The present value of eliminating float is equal to the
			A)	amount of mail delay
			B)	amount of total float
			C)	amount of processing delay
			D)	amount of collection float
			E)	amount of availability delay
4		In the Miller-Orr model, __________, the greater will be the difference between the target cash balance and the minimum cash balance.
			A)	the lower the uncertainty of the cash flow per period
			B)	the lower the upper limit for cash balances
			C)	the higher the opportunity cost for holding cash
			D)	the higher the order cost
			E)	the higher the minimum cash balance
5		Your checkbook shows you have a $10,000 balance in your account. You write checks totaling $4,000 and make a deposit of $6,000. What is your disbursement float?
			A)	$2,000
			B)	$4,000
			C)	$6,000
			D)	$7,000
			E)	$8,000
6		Your checkbook shows you have a $10,000 balance in your account. You write checks totaling $4,000 and make a deposit of $6,000. What is your collection float?
			A)	-$2,000
			B)	-$4,000
			C)	-$8,000
			D)	-$7,000
			E)	-$6,000
7		Suppose your checkbook shows you have a $10,000 balance in your account. You write checks totaling $4,000 and make a deposit of $6,000. What is your net float?
			A)	-$2,000
			B)	-$6,000
			C)	+$2,000
			D)	+$4,000
			E)	+$6,000

Use the following information to answer the next three questions:
The BDF Co. receives five checks per month, each month. The payments and clearing times are: $4,000, 2 days; $6,000, 2 days; $3,000, 5 days; $8,000, 3 days, and $7,000, 4 days. Assume a 30 day month.

8		What are the average daily receipts?
			A)	$76.71
			B)	$686.67
			C)	$920.55
			D)	$933.33
			E)	$1,019.19
9		What is the weighted average delay in receiving the funds?
			A)	3.6 days
			B)	3.1 days
			C)	4.7 days
			D)	4.2 days
			E)	6.3 days
10		What is the average daily float?
			A)	$2,900
			B)	$1,933
			C)	$2,033
			D)	$2,629
			E)	$1,921