Finance Questions

723 WordsMay 12, 20143 Pages
Provide detailed descriptions and show all calculations used to arrive at solutions for the following questions: 1. Community Hospital has annual net patient revenues of $150 million. At the present time, payments received by the hospital are not deposited for six days on average. The hospital is exploring a lockbox arrangement that promises to cut the six days to one day. If these funds released by the lockbox arrangement can be invested at 8 percent, what will the annual savings be? Assume the bank fee will be $2,000 per month. 2. St. Luke’s Convalescent Center has $200,000 in surplus funds that it wishes to invest in marketable securities. If transaction costs to buy and sell the securities are $2,200 and the securities will be held…show more content…
An important source of temporary cash is trade credit, which does not actually bring in cash, but instead slows its outflow. Vendors often provide discounts for early payment. What is the formula to determine the effective interest rate if the discount is not utilized? Effective interest rate if discount is not utilized = [Discount %/(1-Discount %)] x (360/(Full allowed payment days - Discount days)) Example: Let credit term is 2/10, n/30 Then effective interest rate if discount is not utilized = 2%/(1-2%)*(360/(30-10)) =
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