74) A lockbox system will cost $.42 per check and reduce the average collection time by 1.4
days for a company that receives 164 checks per day with an average value of $219 per check.
The daily interest rate on Treasury bills is .011 percent. What is the anticipated daily cost of the
lockbox system?
A) $96.43
B) $9.25
C) $23.23
D) $68.88
E) $57.81
75) If Merilee Industries installs a lockbox system it should reduce its average collection time by
2.2 days at a cost of $.75 per check. On an average day, 594 checks with an average value of
$4,618 each are received. The daily interest rate on Treasury bills is .009 percent. What is the net
present value of this lockbox arrangement?
A) $4,073,492
B) $2,011,575
C) $1,387,419
D) $1,084,802
E) $974,608
76) International Shoppes receives an average of 418 checks a day with an average amount per
check of $607. A lockbox system is expected to reduce the average collection time by 2.3 days.
The daily interest rate on Treasury bills is .011 percent. What is the maximum cost per check that
can be charged for the company to break-even on the lockbox system?
A) $.154
B) $.167
C) $.159
D) $.163
E) $.147
77) B&C Co. has an average receipt size of $249. A lockbox service should decrease the average
total collection time by 1.6 days at a cost of $95 per day. The company typically receives 2,150
checks per day. The daily Treasury interest rate is .012 percent. What is the NPV of the lockbox
project?
A) $64,893
B) $34,508
C) $73,013
D) $28,306
E) $58,497
78) Paper Mfg. is investigating a lockbox system that would reduce its collection time by two
days at a cost of $.42 per transaction. The company receives an average of 498 payments per day
with an average value of $1,687 each. The Treasury daily interest rate is .012 percent. What is
the NPV of adopting the lockbox system?
A) $28,506
B) −$71,018
C) $54,234
D) $84,468
E) −$62,748
79) Turkey Farms disburses checks every four weeks that have an average total of $68,900 each
which take 3.4 days to clear. How much interest can the company earn annually if it delays
transfer of funds from an interest-bearing account that pays .014 percent per day while the
payments clear? Ignore the effects of compound interest. Assume each year has exactly 52
weeks.
A) $33
B) $87
C) $131
D) $364
E) $426
80) Beasley Enterprises has an agreement with Downtown Bank whereby the bank handles $1.02
million in collections a day and requires a $750,000 compensating balance. Beasley is
contemplating cancelling the agreement and dividing its eastern region so that two other banks
would handle its business. Banks A and B would each handle $.51 million of collections per day
and each requires a compensating balance of $400,000. Collections should be accelerated by one
day if the eastern region is divided. The T-bill rate is 2.97 percent annually. What is the amount
of the annual net savings if this plan is adopted?
A) −$20,210
B) $28,809
C) $31,325
D) $29,406
E) −$19,706
81) Mountain top Inc. can reduce its collection time by one day if it installs a lockbox system at a
cost of $2,200 a year plus $.52 per transaction. The inn receives an average of 136 payments per
day with an average payment of $7,980 each. The interest rate on money market securities is
3.98 percent. Assume a year has 365 days. What is the NPV of the lockbox system?
A) $156,727
B) $368,654
C) $274,208
D) $421,730
E) $226,203
82) Cow Chips Inc. can install a lockbox system to speed up collections by two days for an
annual fee of $17,000 plus 21 cents per transaction. The average customer payment is $11,480.
Treasury bills are currently yielding 3.5 percent per year. Assume a year has 365 days.
Approximately how many customers each day, on average, are needed to make this installation
profitable for Cow Chips?
A) 56.03
B) 23.43
C) 74.50
D) 83.33
E) 89.20
83) Assume Wilt, Inc. owns 15,000 shares of preferred stock in Dallas Enterprises, Inc. If Dallas
Enterprises issues a preferred stock cash dividend of $1.20 per share, what amount per share, if
any, is taxable income to Wilt Distributors?
A) $.84
B) $.60
C) $1.20
D) $.72
E) $0
84) Davidson, Inc., received dividend income on its stock holdings of $138,400 this year. How
much tax does the firm owe on this income if its tax rate is 21 percent?
A) $29,064
B) $14,532
C) $8,719
D) $20,345
E) $0
85) Buster’s needs $168,000 a week to pay bills and has established a lower cash balance limit of
$75,000. The applicable interest rate is 3.17 percent and the fixed cost of transferring funds is
$34. Based on the BAT model, what is the optimal initial cash balance?
A) $112,008
B) $127,515
C) $104,141
D) $136,893
E) $138,407
86) Theo’s Bar & Grill needs $49,500 a week to pay bills and has established a lower cash
balance limit of $40,000. The applicable interest rate is 3.26 percent and the fixed cost of
transferring funds is $41. Based on the BAT model, what is the optimal average cash balance?
A) $36,199.
B) $49,568
C) $40,232
D) $43,136
E) $38,927
87) Parkway Express needs $172,540 a week to pay bills. The standard deviation of the weekly
disbursements is $8,600. The applicable interest rate is 3.72 percent and the fixed cost of
transferring funds is $38. Based on the BAT model, what is the opportunity cost of holding cash?
A) $3,119
B) $2,518
C) $5,207
D) $6,769
E) $4,508
88) Penco Supply spends $319,600 a week to pay bills and maintains a lower cash balance limit
of $65,000. The standard deviation of its disbursements is $12,900. The applicable interest rate is
3.26 percent and the fixed cost of transferring funds is $43. What is the optimal initial cash
balance based on the BAT model?
A) $167,154
B) $210,929
C) $168,753
D) $221,506
E) $209,385
89) Lake Side spends $22,406 a week to pay bills and maintains a lower cash balance limit of
$15,000. The standard deviation of disbursements is $1,300. The applicable interest rate is 3.46
percent and the fixed cost of transferring funds is $38. What is the opportunity cost of holding
cash based on the BAT model?
A) $791
B) $875
C) $804
D) $567
E) $728
90) Rosie O’Grady’s spends $98,000 a week to pay bills and maintains a lower cash balance limit
of $75,000. The standard deviation of the disbursements is $12,200. The applicable interest rate
is 4.36 percent and the fixed cost of transferring funds is $38. What is the total cost of holding
cash based on the BAT model?
A) $4,432
B) $3,862
C) $2,054
D) $4,911
E) $4,109
91) AJ’s spends $327,800 a week to pay bills and maintains a lower cash balance limit of
$50,000. The standard deviation of its disbursements is $36,900. The applicable interest rate is
3.48 percent and the fixed cost of transferring funds is $58. What is the optimal average cash
balance based on the BAT model?
A) $119,183
B) $138,407
C) $102,209
D) $97,887
E) $127,237
92) The Cow Pie Spreader Co. spends $238,700 a week to pay bills and maintains a lower cash
balance limit of $67,000. The standard deviation of the disbursements is $22,400. The applicable
weekly interest rate is 0.052 percent and the fixed cost of transferring funds is $46. What is the
target cash balance based on the Miller–Orr model?
A) $99,169
B) $93,405
C) $122,038
D) $100,406
E) $118,922
93) The Moon Hotel spends $157,300 a week to pay bills and maintains a lower cash balance
limit of $50,000. The standard deviation of the disbursements is $11,307. The applicable weekly
interest rate is 0.043 percent and the fixed cost of transferring funds is $44. What is the optimal
upper cash limit based on the Miller–Orr model?
A) $114,225
B) $107,905
C) $92,748
D) $123,825
E) $99,309
94) Donaldson Inc. spends $87,000 a week to pay bills and maintains a lower cash balance limit
of $40,000. The standard deviation of the disbursements is $12,900. The applicable weekly
interest rate is .042 percent and the fixed cost of transferring funds is $57. What is your optimal
average cash balance based on the Miller–Orr model?
A) $78,333
B) $74,242
C) $66,667
D) $77,480
E) $72,560
95) The Burger Stop spends $36,800 a week to pay bills and maintains a lower cash balance limit
of $15,000. The standard deviation of the disbursements is $5,400. The applicable weekly
interest rate is .046 percent and the fixed cost of transferring funds is $55. What is the optimal
average cash balance based on the Miller–Orr model?
A) $28,906
B) $33,369
C) $38,211
D) $24,700
E) $31,764
96) The Tire Shop spends $47,200 a week to pay bills and maintains a lower cash balance limit
of $12,000. The standard deviation of the disbursements is $3,800. The applicable weekly
interest rate is .047 percent and the fixed cost of transferring funds is $49. What is the cash
balance target based on the Miller–Orr model?
A) $48,152
B) $18,731
C) $38,909
D) $22,413
E) $47,726
97) Travel Inn Express spends $89,700 a week to pay bills and maintains a lower cash balance
limit of $27,000. The standard deviation of the disbursements is $11,400. The applicable weekly
interest rate is .041 percent and the fixed cost of transferring funds is $48. What is the optimal
upper cash limit based on the Miller–Orr model?
A) $49,513
B) $51,359
C) $94,540
D) $106,359
E) $85,118