Vous êtes sur la page 1sur 2

BA 303 CORPORATE FINANCE

TUTORIAL CASH MANAGEMENT AND SHORT TERM FINANCING.


1. Liquid asset balances include all of the following except
a. accounts receivable
b. checking account balances
c. marketable securities
d. currency on hand
2. The difference between the firm's checking account balance shown on the books of the bank and the
account balance shown on its own books is known as
a. overdraft
b. compensating balances
c. surplus balances
d. float
3. The optimal amount of the firm's liquid asset balance to be invested in marketable securities is a function
of
a. the interest earned over the expected holding period
b. the transaction cost involved in buying and selling the securities
c. the spread between long-term and short-term interest rates
d. the interest earned over the expected holding period and the transaction cost involved in
buying and selling the securities
4. The primary reason(s) that firms do not hold long-term U.S. Treasury securities in their marketable
securities portfolio is because
a. the interest-rate risk associated with these securities is too high
b. the transactions costs associated with these securities is too high
c. the default risk associated with these securities is too high
d. these securities are not readily marketable
5. The "shortage" costs associated with inadequate liquid asset balances include all of the following except
a. deterioration of the firm's credit rating
b. foregone cash discounts
c. lost sales
d. possible financial insolvency
6. There is a(n) ____ relationship between a firm's liquid asset balance and "shortage" costs.
a. direct
b. no
c. inverse
d. very small
7. Negotiated short-term credit sources are all of the following EXCEPT:
a. commerical paper
b. inventory loans
c. trade credit
d. bank credit

8. The Essex Company found that an average of 10 days elapses between when customer payments are
received and the deposited funds clear the customer's bank and become usable by the firm. Essex's
annual sales are $240 million. (Assume 365 days per year when converting from annual data to daily
data or vice versa.)
a. What is the increase in Essex's average cash balance assuming that it can reduce the time
required to process customer payments by 3 days through more efficient payment processing
methods?
b. Suppose that Essex is able to reduce the time required to process customer payments by 4 days
through more efficient payment processing methods. Given that these additional funds can be
used to reduce the firm's outstanding bank loans (10% interest rate), what is the annual pretax
savings in interest expense?
9. MLX has annual sales of $320 million per year and has calculated that the collection float is 12 days. If
MLX is currently paying 9.35 percent on its line of credit, what amount of interest expense could be
saved if the collection float is reduced by 3 days? Assume 365 days per year.
10. Pronet has annual sales of $724 million from its 600 retail stores. Pronet can reduce its mail float by 2
days through the use of wire transfers. The annual cost of the wire transfers is expected to be $105,610.
If Pronet's cost of short-term funds is 9.75 percent, should the change to wire transfers be made? Assume
365 days per year.
11.Amazon's CFO is considering the fees charged by two banks at trying to determine which is best for her
firm. First American charges a flat $0.11 per payment and First Western requires a minimum
compensating balance of $500,000 plus $0.05 per payment.
a. If Amazon's cost of funds is 8.50%, and the expected number of payments per year is 900,000,
which bank should be chosen?
b. What is the number of payments per year where the costs of the two banks will be equal?