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Chapter 20Cash, Payables, and Liquidity Management MULTIPLE CHOICE 1. The amount of time that it takes for a check to clear through the banking system is called a. mail float b. processing float c. clearing float d. delivery float ANS: C DIF: E REF: 20.1 Cash Management 2. Funds that have been sent by the payer, but are not yet usable by the payee are called a. tax balance b. ledger balance c. float d. none of the above ANS: C DIF: E REF: 20.1 Cash Management 3. The collection, concentration, and disbursement of funds for the company is called a. target cash balance b. cash position management c. bank account analysis d. none of the above ANS: B DIF: E REF: 20.1 Cash Management 4. A collection system that is characterized by many collection points with each having a depository ac- count at a local bank is called a. field banking system b. mail based collection system c. electronic invoice presentment and payment system d. electronic bill presentment and payment system ANS: A DIF: E REF: 20.2 Collections 5. Special post office boxes set up by the firm to expedite the receipt and processing of its accounts re- ceivables are called a. safety-deposit boxes b. lockboxes c. float reducers d. none of the above ANS: B DIF: E REF: 20.2 Collections NARRBEGIN: Bavarian Brew Float Bavarian Brew Float Bavarian Brew receives about 350 checks a day with an average check size of $550. Currently custom- ers payments spend 2 days in the mail. Once a check is received it takes about 1.5 days to process it and another 4 days to clear the banking system. The firms opportunity cost is 10%. Assume a 365-day year. NARREND 6. What is Bavarian Brews collection float? a. 4 days b. 2 days c. 1.5 days d. 7.5 days ANS: A 2+1.5+4 = 7.5 DIF: E REF: 20.1 Cash Management NAR: Bavarian Brew Float 7. What is the availability float of Bavarian Brew? a. 2 days b. 4 days c. 7.5 days d. 1.5 days ANS: B DIF: E REF: 20.1 Cash Management NAR: Bavarian Brew Float 8. Bavarian Brew is contemplating implementing a collection system that would decrease the collection float by 2.5 days. What would be the annual benefit of that system? a. $481,250 b. $48,125 c. $96,250 d. $75,480 ANS: B reduction in float value = 2.5(350)(550)(.10) = 48125 DIF: M REF: 20.2 Collections NAR: Bavarian Brew Float 9. Bavarian Brew is contemplating implementing a lockbox system that would decrease the collection float by 2 days. What would be the most the company should be willing to pay on an annual basis for the system? a. $96,250 b. $482,500 c. $38,500 d. $48,125 ANS: C 2(350)(550)(.10) = 38,500 DIF: M REF: 20.2 Collections NAR: Bavarian Brew Float 10. Bavarian Brew is contemplating implementing a lockbox system. If the system has an annual cost of $60,000, by how many days would the float have to be reduced for the company to implement the sys- tem?... View Full Document

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