Cash Management Paper 4


All of the following are reasons for holding cash except for the


All of the following can be utilized by a firm in managing its cash outflows except


JKL Industries requires its branch offices to transfer cash balances once per week to the central corporate account. A wire transfer costs $12 and assures the cash is available the same day. A depository transfer check (DTC) costs $1.50 and generally results in funds being available in 2 days. JKL’s cost of short-term funds averages 9%, and they use a 360-day year in all calculations. What is the minimum transfer amount that would justify the cost of a wire transfer as opposed to a DTC?


Burr Company had the following account balances at December 31, year 2:
Cash in banks $2,250,000
Cash on hand 125,000
Cash legally restricted for additions to plant (expected to be disbursed in year 3) 1,600,000
Cash in banks includes $600,000 of compensating balances against short-term borrowing arrangements. The compensating balances are not legally restricted as to withdrawal by Burr. In the current assets section of Burr’s December 31, year 2 balance sheet, total cash should be reported at


Ral Corp.’s checkbook balance on December 31, year 2, was $5,000. In addition, Ral held the following items in its safe on that date:
Check payable to Ral Corp., dated January 2, year 3, in payment of a sale made in December year 2, not included in December 31 checkbook balance...... $2,000
Check payable to Ral Corp., deposited December 15 and included in December 31 checkbook balance, but returned by bank on December 30 stamped “NSF.” The check was redeposited on January 2, year 3, and cleared on January 9........ 500
Check drawn on Ral Corp.’s account, payable to a vendor, dated and recorded in Ral’s books on December 31 but not mailed until January 10, year 3......... 300
The proper amount to be shown as Cash on Ral’s balance sheet at December 31, year 2, is


On October 31, year 2, Dingo, Inc. had cash accounts at three different banks. One account balance is segregated solely for a November 15, year 2 payment into a bond sinking fund. A second account, used for branch operations, is overdrawn. The third account, used for regular corporate operations, has a positive balance. How should these accounts be reported in Dingo’s October 31, year 2 classified balance sheet?


Troy Toys is a retailer operating in several cities. The individual store managers deposit daily collections at a local bank in a noninterest-bearing checking account. Twice per week, the local bank issues a depository transfer check (DTC) to the central bank at headquarters. The controller of the company is considering using a wire transfer instead. The additional cost of each transfer would be $25; collections would be accelerated by two days; and the annual interest rate paid by the central bank is 7.2% (0.02% per day). At what amount of dollars transferred would it be economically feasible to use a wire transfer instead of the DTC? Assume a 360-day year.


Which of the following is true about electronic funds transfer from a cash flow standpoint?


Management of Radker Corp. is considering a lockbox system. The bank will charge $10,000 annually for the service, which will save the firm approximately $5,000 in processing costs. The lockbox system will reduce the float for cash receipts by three days. Assuming that the average daily receipts are equal to $100,000, and short-term interest costs are 5%, calculate the benefit or loss from adopting the lockbox system.


Which of the following is true about a firm’s float?


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