Question 1
Firms hold cash to satisfy the transaction motive. This means that cash is held:
A. to meet disbursements for normal operations.
B. to balance the flow between cash inflows and outflows.
C. to make unexpected payments such as special price discounts.
D. Both to meet disbursements for normal operations; and to balance the flow between cash inflows and outflows.
E. None of these.

Question 2
If the total long term financing of the firm is greater than the total financing needs for part of the year, and less than the needs for some of the year due to seasonal fluctuations, the company will most likely:
A. hold excess cash.
B. borrow short term and hold excess cash.
C. hold excess cash and reduce business activities.
D. invest in marketable securities and borrow short term.
E. None of these.

Question 3
The Timberline firm expects a total cash need of $12,500 over the next 3 months. They have a beginning cash balance of $1,500, and cash is replenished when it hits zero. The fixed cost of selling securities to replenish cash balances is $3.50. The interest rate on marketable securities is 8% per annum. There is a constant rate of cash disbursement and no cash receipts during the month. Based on the firm's current practice, what is the average daily cash balance (a month has 30 days)?
A. $50.00
B. $69.44
C. $94.44
D. $138.89
E. None of these.

Question 4
The target cash balance is reached when:
A. the interest on any marketable security throw-off is maximized.
B. the interest foregone from not investing in an equivalent amount of Treasury bills is minimized.
C. the value of cash liquidity equals interest foregone on an equivalent amount of Treasury bills.
D. the liquidity value is greater than interest foregone on an equivalent amount of Treasury bills.
E. None of these.

Question 5
A financial manager should be concerned about bank cash and net float, which is the sum of:
A. collection and book cash.
B. collection float and disbursement float.
C. disbursement float and book cash.
D. disbursement float and bank credit.
E. None of these.

Question 6
On an average day, Tennis R Us writes checks totaling $2,000. These checks take 3 days to clear. The company receives checks totaling $1,800. These checks take 2 days to clear. The cost of debt is 8%. What is the firm's net float?
A. $-2,500
B. $-2,400
C. $2,400
D. $2,500
E. None of these.

Question 7
Firms would need to hold zero cash when transactions related needs are:
A. greater than cash inflows.
B. less than cash inflows.
C. not perfectly synchronized with cash inflows.
D. perfectly synchronized with cash inflows.
E. None of these.

Question 8
Marketability risk is synonymous with:
A. maturity risk.
B. default risk.
C. liquidity risk.
D. interest rate risk.
E. None of these.

Question 9
The fastest but most expensive way to transfer surplus funds from the local deposit bank to the concentration bank is:
A. a lockbox system.
B. a mail float system.
C. a wire transfer.
D. an in-house processing float system.
E. an availability float system.

Question 10
On an average day, a company writes checks totaling $1,500. These checks take 7 days to clear. The company receives checks totaling $1,800. These checks take 4 days to clear. The cost of debt is 9%. What is the firm's collection float?
A. $-7,200
B. $-1,800
C. $1,800
D. $10,500
E. None of these.

Question 11
A firm with low cash balances will need to borrow to cover an unexpected cash outflow:
A. if it has high cash flow variability.
B. if COGS decrease.
C. if the firm maintains a zero lower control limit.
D. Both if it has high cash flow variability and if COGS decrease.
E. Both if it has high cash flow variability and if the firm maintains a zero lower control limit.

Question 12
Firms hold cash, in part, to satisfy compensating balances. Compensating balances are:
A. cash balances held at the firm in excess of its transactions needs.
B. cash balances held at the firm that are below that of its transactions needs.
C. cash balances held at the firm in excess of its cash inflows.
D. cash balances held at commercial banks to pay implicitly for bank services.
E. None of these.

Question 13
The Timberline firm expects a total cash need of $12,500 over the next 3 months. They have a beginning cash balance of $1,500, and cash is replenished when it hits zero. The fixed cost of selling securities to replenish cash balances is $3.50. The interest rate on marketable securities is 8% per annum. There is a constant rate of cash disbursement and no cash receipts during the month. Based on the firm's current practice, how many times during the next 3 months will the cash balance be replenished?
A. 3.33 times
B. 4.42 times
C. 8.33 times
D. 13.35 times
E. None of these.

Replenish Times = Cash Needs/Cash Balance = $12,500/$1,500=8.33 times

Question 14
When a firm writes a check, there is an immediate decrease in _____ cash, but no immediate change in _____ cash.
A. bank; collected
B. ledger; book
C. bank; ledger
D. book; bank
E. None of these

Question 15
The Timberline firm expects a total cash need of $12,500 over the next 3 months. They have a beginning cash balance of $1,500, and cash is replenished when it hits zero. The fixed cost of selling securities to replenish cash balances is $3.50. The interest rate on marketable securities is 8% per annum. There is a constant rate of cash disbursement and no cash receipts during the month. What is the total fixed order cost for the next three months based on the firm's current practice?
A. $29.17
B. $37.80
C. $55.60
D. $75.60
E. None of these.