he Staal Corporation is trying to decide whether to switch to a bank that will accommodate electronic funds transfers from Staal's customers. Staal's financial manager believes the new system would decrease its collection float by as much as five days. The new bank would require a compensating balance of $2,000,000, whereas its present bank has no compensating balance requirement. Staal’s average daily collections are $800,000, and it can earn 8% on its short-term investments. Should Staal make the switch?
Q: Problem 7-8 Dividend Discount Model (LO2) Rework Table 7.4 for horizon years 1, 2, 3, and 10,…
A: Dividend in year 1 = $3Growth rate = 6%Required rate = 12%
Q: Tom's Trashbins Inc. has fixed costs of $225,530. The firm's sales are expected to be $427,772 th…
A: Fixed cost = $225,530Sales = $427,772Number of units sold = 9,458 unitsvariable cost = 41% of sales
Q: You are considering purchasing a car with a sticker price of $50,000 (nonnegotiable with no down…
A: The amortization of loan refers to systematic, equal and regular repayment of loan. The instalment…
Q: If we define the NPV index as the ratio of NPV to cost, what is the relationship between this index…
A: In this question, we are required to determine the relationship between NPV Index and Profitability…
Q: A homeowner could take out a 15-year mortgage at a 5.5 percent annual rate on a $195,000 mortgage…
A: Amortization of a loan refers to the regular and equal instalments spread over the period of the…
Q: The function f(x) = 600 represents the rate of flow of money in dollars per year. Assume a 10-year…
A: Future value is the amount of deposit done and the amount of interest accumulated over the period of…
Q: How many pounds of whole potatoes do you need to buy if you must make 90 lbs of mashed potatoes?…
A: The objective of the question is to determine the total weight of whole potatoes needed to produce…
Q: A project has annual cash flows of $7,000 for the next 10 years and then $7,000 each year for the…
A: NPV is an important tool for decision-making. If A project with a positive net present value (NPV),…
Q: The risk-free rate is 3.7 percent and the expected return on the market is 12.3 percent. Stock A has…
A: If expected return is more than required return then security is undervalued.If required return is…
Q: The present value of an annuity is the sum of the discounted value of all future cash flows. You…
A: An annuity's present value is the current value, discounted at a certain rate, of a series of future…
Q: Calculate the arithmetic average of the following retums. Year Retum 1 0.27 2 0.21 30.02 4 0.09 5…
A: We have the following returns:Year 1: 0.27Year 2: 0.21Year 3: 0.02Year 4: 0.09Year 5: 0.18Total…
Q: Your firm purchased an equipment from a British company. Total cost was £50,000 (in 30 days). The…
A: Determining the maximum (or minimum) strike price for the option, you will want to choose a strike…
Q: Charleston Water System issued 10-year bonds 4 years ago with a coupon rate of 7.5%. The bonds are…
A: Compound = Semiannually = 2Time = t = (10 - 4) * 2 = 12Coupon rate = c = 7.5 / 2 = 3.75%Quoted Price…
Q: On December 31, 2023, Berclair Incorporated had 300 million shares of common stock and 5 million…
A: Earnings Per Share:EPS is an important indicator of a company’s profitability and is widely used by…
Q: Our Space is a social media site that is growing in popularity. The firm has been around for a few…
A: The Average PS ratio of 3 firms= (Facebook P/S + Snap P/S + Twitter P/S)/3
Q: Elle holds a $10,000 portfolio that consists of four stocks. Her investment in each stock, as well…
A: According to Capital asset pricing model ,Rp = Rf+[b*(Rm-Rf)]whereRp= Required return of…
Q: If the IRS increases the capital gain tax, institutional investors' preference for dividends versus…
A: Dividends represent a part of a company's profits distributed to its shareholders based on the…
Q: Greta has risk aversion of A = 4 when applied to return on wealth over a one-year horizon. She is…
A: Covariance is a term used in finance to describe the relationship between two random variables, such…
Q: Which of the following statements about annuities are true? Check all that apply. A perpetuity is a…
A: Future Value of Annuity is a financial concept that represents total value of a series of equal and…
Q: Instructions Instructions Suppose the expected exchange rates are the average expectations by…
A: Rate of ReturnRate of return which is usually expressed in percentage represents the profitability…
Q: Last year, Cayman Corporation had sales of $6,834,793, total variable costs of $2,832,135, and total…
A: Earnings Per Share (EPS) is a financial metric that represents the portion of a company's profit…
Q: Suppose you believe that Johnson Company's stock price is going to increase from its current level…
A: An option is a specific kind of financial contract. In simple terms, a financial contract is a deal…
Q: A stock price is currently $40. It is known that at the end of three months it will be either $44 or…
A: To calculate the value of a three-month European call option on the stock, we can use both the…
Q: The management of Unter Corporation, an architectural design firm, is considering an investment with…
A: Making decisions about capital budgeting entails assessing and choosing capital expenditures or…
Q: The Moonlight Mile Corporation wants to issue $1,000,000 of new bonds. Their bonds will have a…
A: Price / Present Value can be calculated using PV function in excelPV (rate, nper, pmt, [Fv],…
Q: Booing Corporation has just issued a callable (at par) three-year, 5.5% coupon bond with semi-annual…
A: The YTM refers to the return that the bond provides if the bond is held till the maturity date. The…
Q: down by 25%. The continuously compounded risk - free interest rate is 5%. Calculate the price of an…
A: An option is an agreement between two parties granting one the opportunity to buy or sell a security…
Q: What is the formula for depreciable value in financial management.
A: In this question, we are required to determine the formula for depreciable value in financial…
Q: Which of the following was NOT a direct and major consequence of the 2007-2009 U.S. Subprime…
A: The objective of the question is to identify which of the given options was not a direct and major…
Q: Find the periodic payment R required to accumulate a sum of S dollars over t years with interest…
A: An annuity is a cash flow that occurs at regular intervals. For instance a cash inflow of $100 each…
Q: Beale Manufacturing Company has a beta of 1.8, and Foley Industries has a beta of 0.60. The required…
A: Beale's beta = 1.8Foley's beta = 0.60Risk-free rate = 3.5%Market rate = 11%
Q: Current Attempt in Progress Your answer is partially correct. Wildhorse Corporation, an amusement…
A: Net present value refers to the method of capital budgeting used for estimating the viability of the…
Q: The winner of a lottery chooses to receive annual payments of $170,000 at the end of each year for…
A: Annual Payment = p = $170,000Time = t = 25 YearsInterest Rate = r = 4.2%
Q: For the given cash flows, suppose the firm uses the NPV decision rule. Year 0 1 2 3 Cash Flow -$…
A: NPV can be calculated by following function in excel=NPV(rate,value1,[value2],…) + Initial…
Q: Carla Vista Co. issues a 10%, 7-year mortgage note on January 1, 2022, to obtain financing for new…
A: Number of periods= 7*2= 14interest rate semi annually is= 10%/2= 5%Present value annuity factor at…
Q: You invest 70% of your funds in stock X with an expected return of 16% and a standard deviation of…
A: The amount invested in the portfolio in certain definite proportions will be multiplied by their…
Q: You need to estimate the value of Laputa Aviation. You have the following forecasts (in millions of…
A: Year 1Year 2Year 3Year 4EBITDA$78$98$113$118Depreciation$38$48$53$58Pretax profit$40$50$60$60Tax…
Q: Kindly show the workings for step 3.
A: The capital structure represents the proportional composition of the different sources of capital in…
Q: 1.Is the volatility index derived from the options of the constituent stocks of the S & P 500 index?…
A: Financial products known as derivatives derive their value from the price of an index or underlying…
Q: Problem Boatler Used Cadillac Company requires $810,000 in financing over the next two years. The…
A: Interest Cost = Amount Borrowed * Interest rate % * Number of years
Q: Kahn Inc. has a target capital structure of 50% common equity and 50% debt to fund its $8 billion in…
A: The growth rate can be found by using the dividend discount model which is as follows:The another…
Q: The returns of a stock follow the normal distribution, with average return of 13.2% and standard…
A: Standard deviation is a statistical metric used to gauge the extent of probability or dispersion…
Q: You purchased a coupon bond one year ago. The bond makes annual interest payments at a coupon rate…
A: A bond refers to an instrument that is used to raise debt capital for the issuing company from…
Q: $1100 per month for 31 months at the rate of 12% compounded monthly
A: The present worth of the annuity or the monthly payments can be found by using the PV function in…
Q: The dean of the School of Fine Arts is trying to decide whether to purchase a copy machine to place…
A: Variables in the question:Incremental cash inflows per year=$19500n=3 yearsSalvage value=NilRequired…
Q: Present value Years of stay Rent per year (3 years) Rent for year 4 & 5 Expenses in year 3 Sale…
A: The problem case focuses on calculating the net present value (NPV) of the investment and…
Q: Suppose you open a credit card account and charge $150 to the account on the first of each month to…
A: MonthStarting balanceNew PurchasesBalance+ PurchasesFinance chargeNew BalanceMinimum…
Q: Munich Re Inc. is expected to pay a dividend of $4.82 in one year, which is expected to grow by 4% a…
A: Expected Dividend = d1 = $4.82Growth Rate = g = 4%Current Price of Stock = p0 = $74Before Tax Cost…
Q: Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset…
A: Operating cash flows are sum of profit after tax and non cash expenses like depreciation.
Q: Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France will be billed…
A: In the field of finance, hedging is a tactic employed to reduce or eliminate the possible adverse…
The Staal Corporation is trying to decide whether to switch to a bank that will accommodate electronic funds transfers from Staal's customers. Staal's
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
- Archer Arrow Company examined its cash management policy and found that it takes an average of 5 days for the checks that the company writes to reach its bank and thus be deducted from the checking account balance. On the other hand, it takes an average of 4 days from the time the company receives the checks from its customers until the fund becomes available for use at the bank. On the average, Archer writes a total of P70,000 per day and it receives from customers a total of P80,000 per day. Compute the disbursement float. Compute the collection float. Compute the net float.Archer Arrow Company examined its cash management policy and found that it takes an average of 5 days for the checks that the company writes to reach its bank and thus be deducted from the checking account balance. On the other hand, it takes an average of 4 days from the time the company receives the checks from its customers until the fund becomes available for use at the bank. On the average, Archer writes a total of P70,000 per day and it receives from customers a total of P80,000 per day. Compute the disbursement float. Compute the collection float. Compute the net float. Thank you so much!Osborne Shipbuilding Company, located in Baton Rouge, receives large remittances from its customers in New York and California. If the firm deposits these checks in its local bank, two business days are required for the checks to clear and the funds to become usable by the firm. However, if Osborne sends an employee to New York or California and presents the check for payment at the bank upon which it is drawn, the funds are available immediately to the firm. The firm can earn 8% per annum on short-term investments, and the cost of sending an employee to New York or California to present the check for payment is $500. What is the net benefit to the firm of employing this special handling technique for a $5 million check received on Tuesday? (Assume 365 days per year.)
- Osborne Shipbuilding Company, located in Baton Rouge, receives large remittances from its customers in New York and California. If the firm deposits these checks in its local bank, two business days are required for the checks toclear and the funds to become usable by the firm. However, if Osborne sends an employee to New York or Californiaand presents the check for payment at the bank upon which it is drawn, the funds are available immediately to thefirm. The firm can earn 8% per annum on short-term investments, and the cost of sending an employee to New Yorkor California to present the check for payment is $500. What is the net benefit to the firm of employing this specialhandling technique for a $5 million check received on Tuesday? (Assume 365 days per year.)A bank currently holds $105 million in transaction deposits subject to legal reserves but hasmanaged to enter into sweep account arrangements affecting $55 million of these accounts.Given that the bank must hold 3 percent legal reserves up to $47.8 million of transaction depositsand 10 percent legal reserves on any amount above that, how much has this bank reduced its totallegal reserves as a result of these sweep arrangements?Beleaguered State Bank (BSB) holds $200,000,000 in deposits and maintains a reserve ratio of 10%, which also is the reserve requirement. On paper, write the T account for BSB and use it to answer the rest of this question. Now suppose that BSB's largest depositor withdraws $10,000,000 from her account one day. On paper, show the effect of this on the T account. How many dollars of cash reserves does BSB need to raise to be allowed to open for business the next morning?
- Inder Corporation is experiencing a temporary cash shortage and decides to transfer a group of its accounts receivable to Newton Company on March 22. Inder does not normally transfer its receivables. Newton accepts $110,000 of Inder’s accounts receivable, remits 80% of the accounts receivable transferred, and charges a 16% commission on the gross amount of the transferred receivables. Title to the receivables is transferred to Newton, and Newton has the right to assign, pledge, or sell the receivables. During the period, sales returns and allowances on transferred accounts amounted to $1,000. Required: 1. Prepare all the journal entries necessary by Inder to record the preceding information assuming the transfer was without recourse. 2. Prepare all the journal entries necessary by Inder to record the preceding information assuming the transfer was with recourse and the recourse obligation had an estimated fair value of $5,600. 3. Assume that Inder uses IFRS. How would…Lazard Corporation has experienced cash flow problems and decides to improve its current cash position by factoring 30% of its receivables, without recourse, and assigning the remainder with the same finance company. The factored receivables meet the conditions for a sale while the assigned receivables do not. The agreement with the finance company stipulates that a 10% commission will be assessed on factored accounts, no service charge is assessed on the assigned accounts, and 15% annual interest will be charged on the outstanding note payable balance related to the assigned accounts. Additionally, the finance company will advance only 80% of the factored and assigned accounts, and Lazard must continue the collection responsibilities on the assigned accounts. At the beginning of the last month of the company’s fiscal year, the accounts receivable transferred to the finance company amounted to $187,000. During the month, collections on factored accounts were $46,000, and collections on…Union Company is considering establishment of a zero-balance account. The firm currently maintains an average balance of $418,000 in its disbursement account. As compensation to the bank for maintaining the zero-balance account, the firm will have to pay a monthly fee of $1,110 and maintain a $298,000 non-interest-earning deposit in the bank. The firm currently has no other deposits in the bank. Evaluate the proposed zero-balance account, and make a recommendation to the firm, assuming that it has an opportunity cost of 12.6%. The current opportunity cost is $ ?. (round to the nearest dollar.)
- a. Paradise Retailers, Inc. (PRI) determined that $1,500,000 is needed for cash transactions made during the next year. Each time PRI deposits money in its checking account, a charge of $12.95 is assessed to cover clerical costs. PRI can hold marketable securities that yield 4.5%, and then convert these securities to cash at a cost of only the $12.95 deposit charge. Optimal Cash Amount = 29382.53 PRI’s financial managers have not been following the Baumol Model. Instead, they have been transferring cash from marketable securities less frequently, namely, transferring cash every three weeks. What total cash cost including holding costs and transactions costs could PRI save by transferring the optimal cash amount C* rather than this larger transfer amount?Omicron Ltd. has a petty cash fund for $2,750 when established. When financial statements are prepared at the end of the month it replenishes the fund. The company finds that the fund is empty in the last week of the month so it decides to increase the fund size by 50%. On February 18th, when it is decided to increase the petty cash fund size, there are $1,285 in expense receipts and vouchers that justify the depletion of the fund during the month. Omicron Ltd. decides to replenish and increase the fund size in the same journal entry. Required 1: How much is the cheque written to complete this transaction? $Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 20%. The Federal Reserve buys a government bond worth $750,000 from Lorenzo, a customer of First Main Street Bank. He deposits the money into his checking account at First Main Street Bank. Complete the following table to reflect any changes in First Main Street Bank's balance sheet (before the bank makes any new loans). Assets Liabilities Complete the following table to show the effects of the new deposit on excess and required reserves, assuming a required reserve ratio of 20%. Hint: If the change is negative, be sure to enter the value as a negative number. Amount Deposited Change in Excess Reserves Change in Required Reserves (Dollars) (Dollars) (Dollars) 750,000 Now, suppose First Main Street Bank loans out all of its new excess reserves to Juanita, who immediately…