Cash Management Paper 1


Of the following, the working capital financing policy that would subject a firm to the greatest level of risk is the one where the firm finances


Average daily cash outflows are $3 million for Evans, Inc. A new cash management system can add 2 days to the disbursement schedule. Assuming Evans earns 10% on excess funds, how much should the firm be willing to pay per year for this cash management system?


According to John Maynard Keynes, the three major motives for holding cash are for


A consultant recommends that a company hold funds for the following two reasons:
1. Reason #1: Cash needs can fluctuate substantially throughout the year.
2. Reason #2: Opportunities for buying at a discount may appear during the year.
The cash balances used to address the reasons given above are correctly classified as
Reason #1
Reason #2


All of the following are valid reasons for a business to hold cash and marketable securities except to


Some managers express the opinion that their “cash management problems are nothing more than inventory problems.” They then proceed to use cash management models, such as the EOQ model, to determine the


The economic order quantity (EOQ) formula can be adapted in order for a firm to determine the optimal split between cash and marketable securities. The EOQ model assumes all of the following except that


The most direct way to prepare a cash budget for a manufacturing firm is to include


What is the benefit for a firm with daily cash receipts of $15,000 to be able to speed up collections by 2 days, assuming an 8% annual return on short-term investments and no cost to the company to speed up collections?


DLF is a retail mail order firm that currently uses a central collection system that requires all checks to be sent to its Boston headquarters. An average of 6 days is required for mailed checks to be received, 3 days for DLF to process them, and 2 days for the checks to clear through its bank. A proposed lockbox system would reduce the mailing and processing time to 2 days and the check clearing time to 1 day. DLF has an average daily collection of $150,000. If DLF adopts the lockbox system, its average cash balance will increase by


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