GEN CMB LL CORP FINC; CNCT
11th Edition
ISBN: 9781259724145
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Question
Chapter 27, Problem 7CQ
Summary Introduction
To identify: That what ethical dilemmas will be raised, if the book balance of a firm is $2 million and at the ATM, the cash manager finds it representing as $2.5 million.
Introduction:
Float is defined as the difference between the balance shown in ledger of the company and the balance that is available at the bank. Available balance refers to the balance that is shown by the banks of that particular company.
Disbursement float is the difference between the payment paid to the customers and distributors that is subtracted from the ledger and the amount that is be deducted from the available bank account in the later days.
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Ted's Toys just reconciled its bank account and has $12,300 in outstanding deposits and $31,400 in checks outstanding. The firm's checkbook has a positive balance. The firm sells on a cash basis only and deposits its receipts on a daily basis. The deposited funds are available to the firm the following day. The firm writes and mails checks on a daily basis also. These checks generally clear the bank in three days. What do you know about the firm's float given this information?
A.
The firm has disbursements float but no collection float.
B.
The collection float exceeds the disbursement float.
C.
The firm has a net collection float.
D.
The disbursement float exceeds the collection float.
E.
Since transactions occur daily, the firm has no float.
. Which one of the following best represents the transaction motive for holding cash?
A.
Buying extra inventory in response to an unexpected sale offered by a supplier
B.
Distributing the weekly paychecks
C.
Increasing the minimum cash balance for the firm's main bank account
D.
Unexpectedly purchasing a competitor's firm
E.
Holding cash in anticipation that the firm may need to close for a few days if floodwaters keep rising
Question 1
Please use an example to explain the process that the banking system uses to create money. Assume in your example that Bank 1 receives $1,200 from Firm A and sets up a checking account (demand deposits) for Firm A. Three firms, i.e., Firm A, Firm B, and Firm C, will be included in the process. Also assume that Bank 1, Bank 2, and Bank 3 all hold 12% in reserves and lend out the remaining demand deposits to corporations to earn interests.
Chapter 27 Solutions
GEN CMB LL CORP FINC; CNCT
Ch. 27 - Cash Management Is it possible for a firm to have...Ch. 27 - Cash Management What options are available to a...Ch. 27 - Prob. 3CQCh. 27 - Cash Management versus Liquidity Management What...Ch. 27 - Prob. 5CQCh. 27 - Collection and Disbursement Floats Which would a...Ch. 27 - Prob. 7CQCh. 27 - Short-Term Investments For each of the short-term...Ch. 27 - Prob. 9CQCh. 27 - Prob. 10CQ
Ch. 27 - Prob. 11CQCh. 27 - Prob. 12CQCh. 27 - Calculating Float In a typical month, the Warren...Ch. 27 - Calculating Net Float Each business day, on...Ch. 27 - Costs of Float Purple Feet Wine, Inc., receives an...Ch. 27 - Float and Weighted Average Delay Your neighbor...Ch. 27 - Prob. 5QPCh. 27 - Using Weighted Average Delay A mail-order firm...Ch. 27 - Prob. 7QPCh. 27 - Lockboxes and Collections It takes Cookie Cutter...Ch. 27 - Value of Delay No More Pencils, Inc., disburses...Ch. 27 - NPV and Reducing Float No More Books Corporation...Ch. 27 - Prob. 11QPCh. 27 - Prob. 12QPCh. 27 - Prob. 1MCCh. 27 - Prob. 2MCCh. 27 - What cost of ACH transfers would make the company...
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- Analyzing Cash and Marketable Securities techniques through answering the following: 3.a. What are the Keynes as a reasons/motives for holding cash? 3.b. A company has daily cash receipts of $100,000. The treasurer of the company has investigated a lock box service whereby the bank that offers this service will reduce the company’s collection time by three days at a monthly fee of $1,500. If money market rates average 5% during the year, what is the additional annual income (loss) from using the lock box service? 3.c. What do you think is a collection float compared with deposit float? 3.d. What is the type of float that management should increase due to its positive impact in the cash balance of the company?arrow_forwardChoose from the following list of terms and phrases to best complete the following statements. a. Cash c. Outstanding check e. Cash over and short b. Cash equivalents d. Liquidity f. Voucher system 1. The category includes currency, coins, and deposits in bank accounts. 2. The term refers to a company’s ability to pay for its current liabilities. 3. The category includes short-term, highly liquid investment assets that are readily convertible to a known cash amount and sufficiently close to their due dates so that their market value will not greatly change.arrow_forwardSuppose that the company has a balance sheet as follows at the beginning of the year. In that single year, the following transactions occur. One of the customers pays his $1,400 amount of debt by check. The company immediately pays its $1,200 amount of debt by endorsing these checks. After a while, another customer pays $900 cash for an outstanding debt. The company deposits $800 of this amount to its bank. Then, the company decides to pay one half of its debts via EFT(electronic funds transfer), and the other half of its debts by issuing its own checks. Lastly, the payee cashes these checks from the bank. Assuming that there are no more transactions throughout the year, what would be the total asset at the end of that year?arrow_forward
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- Problem Solving. 1. The accountant of Dos Company is preparing a bank reconciliation with the following information: bank balance, unadjusted ? ; book balance, unadjusted P80,000; DIT P14,000; outstanding checks P32,000; CM P19,000; and DM P8,000. How much is the adjusted book balance? 2. How much is the unadjusted bank balance of Dos Company?arrow_forwardFinancial Statement is a formal record of the financial activities and position of a business, person, or other entity. Do you think it is a good strategy for a business to have a huge amount of cash in bank? (10 Sentences)arrow_forwardYou are a Corporate Credit Analyst for your bank. A new corporate customer in the manufacturing sector approached your bank for a large credit facility in the sum of $20 million for production equipment and warehousing. The customer submitted the following financials to you. The cash position increased from $6.7 million in 2019 to $16 million in 2021. Does this signal a strengthening of the liquidity position of the firm? Explain.arrow_forward
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