NAME: ___________________________ GROUP :____________ MATRIC NO.

: _________

TUTORIAL 8 CASH AND MARKETABLE SECURITIES

1. Float is defined as the:

A. amount of cash a firm can immediately withdraw from its bank account.
B. difference between book cash and bank cash.
C. change in a firm's cash balance from one accounting period to the next.
D. amount of cash a firm has on hand.
E. cash balance according to a firm's records.

2. A lockbox is a

A. special safe used by a firm for overnight storage of any cash or undeposited checks.
B. special safe used by a firm that can only be opened at prespecified times of the day.
C. box located in a bank's vault that is rented by a firm and used to hold unprocessed checks.
D. special post office box which can only be opened by prespecified postal inspectors for direct
delivery to the addressee.
E. post office box strategically located so that a firm's receivables can be collected faster.

3. The Presque Isle Center has branch operations in three states. Each branch deals with a local
bank. However, all excess funds in these branch bank accounts are transferred on a daily basis to
the firm's primary bank located near the firm's home office. This routine of transferring cash to
the primary bank on a regular basis is referred to as:

A. cash concentration.
B. strategic cash disbursement.
C. transfer flotation.
D. payables management.
E. float management.
NAME: ___________________________ GROUP :____________ MATRIC NO.: _________

5. Why do firms need liquidity?

I. to meet compensating balance requirements
II. to take advantage of an opportunity that suddenly arises
III. to conduct daily business activities
IV. to be prepared for a financial emergency

A. I and II only
B. III and IV only
C. I, III, and IV only
D. II, III, and IV only
E. I, II, III, and IV

6. Disbursements float:

A. occurs when a deposit is recorded but the funds are unavailable.

B. causes the book balance to exceed the bank balance.
C. has tended to increase since the enactment of the Check Clearing Act for the 21st Century.
D. is a recommended source of funds for short-term investments.
E. is eliminated when payments are made electronical.

7 A zero-balance account:

A. is used to cover the compensating balance requirement of a line of credit agreement.

B. is only used to deposit funds received at local lockboxes.
C. is funded on an as-needed basis only.
D. is limited to handling payroll disbursements.
E. requires a compensating balance.

8. Money market securities have which of the following characteristics?

I. long maturities
II. low default risk
III. high degree of liquidity
IV. low rates of return

A. I and III only

B. II and III only
C. I and IV only
D. II, III, and IV only
E. I, II, III, and IV
NAME: ___________________________ GROUP :____________ MATRIC NO.: _________

9. The Hobby Shop has a checking account with a ledger balance of $692. The firm has $1,063
in uncollected deposits and $846 in outstanding checks. What is the amount of the disbursement
float on this account?

A. $0
B. $217
C. $846
D. $909
E. $1,063

10. On average, your firm receives 62 checks a day from customers. These checks, on average,
are worth $39.90 each and clear the bank in 1.5 days. In addition, your firm disburses 38 checks
a day with an average amount of $89.50. These checks clear your bank in 2 days. What is the
average amount of the collection float?

A. $2,473.80
B. $3,401.00
C. $3,710.70
D. $5,101.50
E. $6,802.00

Collection float = 62 $39.90 1.5 = $3,710.70

11. Hoyes Lumber generally receives 3 checks a month. The check amounts and the collection delay for
each check are shown below. Given this information, what is the amount of the average daily float?
Assume each month has 30 days.

A. $1,386.67
B. $1,407.19
C. $4,750.00
D. $6,833.33
E. $6,933.33

Average daily float = [($6,100 3) + ($5,500 1) + ($8,900 2)]/30 = $1,386.67

NAME: ___________________________ GROUP :____________ MATRIC NO.: _________

12. Roger's Distributors receives an average of 216 checks a day. The average amount per check
is $629. The firm is considering a lockbox system which it anticipates will reduce the average
collection time by 1.5 days. The daily interest rate on Treasury bills is 0.011 percent. What is the
amount of the expected daily savings of the lockbox system?
A. $2.04
B. $6.92
C. $14.95
D. $18.10
E. $22.42

Daily savings = 216 $629 1.5 0.00011 = $22.42

PART B

Based on the following events, describe the motives for corporations to holds cash.
PRECAUTIONERY (P), SPECULATIVE (S), TRANSACTIONS (T)

1. To meet payments such as purchases, wages, taxes and dividends. TRANSACTIONS

2. Taking advantage of temporary opportunity such as sudden decline in the price of raw
materials. SPECULATIVE
3. To maintains a safety cushion or buffer to meet unexpected cash needs.
PRECAUTIONARY
4. Ready borrowing power to meet emergency cash. PRECAUTIONARY
5. Collection of cash from debtors and new financing needed. TRANSACTIONS
6. Ringgit Malaysia fluctuation against U.S dollar (exchange rate). SPECULATIVE

PART C

The Delicious Fingers Company has a weekly payroll of RM150,000 paid on Friday. On
average, its employees cash their checks in the following manner:

DAYS CHECKS CLEARED ON COMPANY, PERCENTAGE OF CHECKS CASHED

S ACCOUNT (%)
Friday 20
Monday 40
Tuesday 25
Wednesday 10
Thursday 5

As treasurer of the company, how you would arrange your payroll account?
NAME: ___________________________ GROUP :____________ MATRIC NO.: _________

DAYS CHECKS CLEARED PERCENTAGE OF CHECKS AMMOUNT DISBURSE

ON COMPANY, S CASHED (RM)
ACCOUNT (%)
Friday 20 30,000
Monday 40 60,000
Tuesday 25 37,500
Wednesday 10 15,000
Thursday 5 7,500