1. P Tours Inc. buys on terms of 2/15, net 30.

It does not take discounts, and it tyPically Pays 35

days after the invoice date. Net Purchases amount to P720,000 Per year. What is the nominal
cost of its non-free trade credit?
a. 17.2% d. 36.7%
b. 23.6% e. 50.6%
c. 26.1%
 2 / 98 *360 / 35-15 =

2. Bully Corporation purchases raw materials on July 1. It converts the raw materials into inventory
by September 30. However, Bully pays for the materials on July 20. On October 31, it sells the
finished goods inventory. Then, the firm collects cash from the sale 1 month later on November
30. If this sequence accurately represents the average working capital cycle, what is the firm's
cash conversion cycle in days?
133 DAYS
JULY

3. ABC, Inc.’s new controller is reviewing the comPany’s cash management. Below are relevant
information regarding trade credits from the suPPliers of the comPany:

SuPPliers Average Monthly Purchases Credit Terms

Tech Co. P 100,000 Net 30
ComPutech 300,000 2/10, n/30
ComPuworks 1,000,000 5/10, n/120
So-wares 600,000 3/10, n/45

The comPany uses a 360-day year. Assume that all of the suPPliers can suPPly any and all of the
requirements of Software and can Provide unlimited credit line to the comPany and that the
comPany can have only one suPPlier. With a cost of bank borrowing of 18% Per annum, which
suPPlier should Software choose?
a. ComPuworks due to the longest credit term of 120 days.
b. ComPutech due to cost of trade credit of 36.7%.
c. ComPuworks due to the highest trade discount at 5%.
d. Tech Co. due to no discount Policy.

4. SuPPose that the interest rate on Treasury bills is 6%, and every sale of bills costs P20. You Pay
out cash at a rate of P400,000 a month. According to Baumol's model of cash balances, how
many times a month should you sell bills?
A. 30 C. 7
B. 20 D. 4
2*400,000*20
 SQUARE ROOT OF ----------------------- = 56,569 400,000 /56,569 = 7
0.005
5. SuPPose that the interest rate on Treasury bills is 6%, and every sale of bills costs P60. You Pay
out cash at a rate of P800,000 a year. According to Baumol's model of cash balances, what is Q?
A. P17,376 D. P50,000
B. P20,000 E. P40,000
C. P10,000
2*800,000*60
 SQUARE ROOT OF ------------------- =40,000
.06

6. Average daily collection of checks for a firm is P40,000. The firm also writes on the average
P35,000 of checks daily. If the collection period for checks is 5 days, calculate the net float. (E)
A. P25,000 C. P175,000
B. P40,000 D. P200,000
40,000-35,000 =5,000*5 =25,000

7. ABC Company writes checks averaging P15,000 a day, and it takes five days for these checks to
clear. The firm also receives checks in the amount of P17,000 per day, but the firm loses three
days while its receipts are being deposited and cleared. What is the firm’s net float in dollars?
a. P126,000d. P 24,000
b. P 75,000 e. P 16,000
c. P 32,000
 15*5 =75,000
17,000*3 =51,000 24,000

8. ABC Inc.. has a total annual cash requirement of P9,075,000 which are to be paid uniformly. ABC
has the opportunity to invest the money at 24% per annum. The company spends, on the
average, P40 for every cash conversion to marketable securities.
What is the optimal cash conversion size?
a. P60,000 c. P55,000
b. P45,000 d. P72,500
2*9,075,00*40
 SQUARE ROOT OF --------------------- =P55,000
.24

9. A banker has offered to set up and operate a lock box system for your company. Details are
given below. Estimate the annual savings.
Average number of daily payments 325
Average size of payments P1,250
Daily interest rate 0.021%
Saving in mailing time 1.3 days
Saving in processing time 0.9 days
Bank charges P0.30
 Assume 250 processing days per year.
A. P3,273 C. P23,500
B. P22,675 D. P47,000

10. A firm has daily cash receipts of $300,000 and is interested in acquiring a lockbox service in
order to reduce collection time.
 Bank 1's lockbox service costs $3,000 per month and will reduce collection time by 3
days.
 Bank 2's lockbox service costs $5,000 per month and will reduce collection time by 4
days.
 Bank 3's lockbox service costs $500 per month and will reduce collection time by 1 day.
 Bank 4's lockbox service costs $1,000 per month and will reduce collection time by 2
days.

If money market rates are expected to average 6% during the year, and the firm wishes to
maximize income, which bank should the firm choose?
A. Bank 1. C. Bank 3.
B. Bank 2. D. Bank 4.
B1 300,000*3*6% =54,000 –(3,000*12) =18,000
B2 300,000*4*6% =72,000 –(5000*12) =12,000
B3 300,000*1*6% =18,000 –(500*12) =12,000
B4 300,000*2*6% =36,000 –(1,000*12) =24,000