Reference no: EM132963554

Questions - CASH MANAGEMENT

Q1. A firm has daily cash receipts of P300, 000 and is interested in acquiring a lockbox service in order to reduce collection time. The firm received the following lockbox service offers:

Bank 1 will reduce collection time by 3 days at a cost of P3, 000 per month

Bank 2 will reduce collection time by 4 days at a cost of P5, 000 per month

Bank 3 will reduce collection time by 1 day at a cost of P500 per month

Bank 4 will reduce collection time by 2 days at a cost of P1, 000 per month

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?

Q2. The financial manager of Sarap Corporation wants to determine the amount of cash outlays to be spent for the next period. He asked the help of the accountant and the latter provided a cash budget for the next year. According to the computations, the company would be incurring cash expenses of P6,612,500 per month. The financial manager has estimated a cost of P40 per transaction in case non-cash asset is converted to cash. The firm's opportunity cost ratio is 12%.

a. The optimum cash balance is?

b. The average cash balance is?

c. The number of conversion made during the year is?

d. The total cash cost is?