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 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.)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter17: The Management Of Cash And Marketable Securities

Section: Chapter Questions

Problem 9P

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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.)
Currently James Corporation is using a decentralized collection system whereby customers mail their checks to one of the firm’s eight regional locations. Its annual sales are $150 million. Checks are deposited each business day in a local bank and the amount of the deposit is sent to the firm’s concentration bank in Dallas. The average time between deposit in the local bank and the availability of those funds, in Dallas, to Riley is 6 days. James has determined that the use of wire transfers would reduce the float by four days, but the transfer will cost $15.00. If transfers will be made on each of the 250 days that banks are open, should Riley switch to the wire transfer system? Assume that James can earn 6% on the funds released through this more efficient transfer.
Neon Light Company of Kansas City ships lamps and lighting appliances throughout the country. Ms. Neon has determined that through the establishment of local collection centers around the country, she can speed up the collection of payments by two and one-half days. Furthermore, the cash management department of her bank has indicated to her that she can defer her payments on her accounts by one-half day without affecting suppliers. The bank has a remote disbursement center in Florida.
Ralph Taylor, a nationwide department store chain, currently processes all of its credit sales payments at its St. Louis headquarters. The firm is considering the establishment of a lockbox arrangement with a Los Angeles bank to process payments from its customers in 10 western states. With the lockbox system, average mailing time for customers from this region would be reduced from 4 days to 1 day. Check-clearing time would also be reduced from 4 days to 1 day. Annual collections from the western region are $285 million. Establishment of this lockbox system would reduce the compensating balance requirement at the firm's St. Louis bank by $350,000 and reduce annual payment processing costs at the St. Louis office by $75,000. Funds released by the lockbox arrangement can be invested elsewhere in the firm to earn 5% before taxes. The Los Angeles bank has agreed to process Ralph Taylor's customer payments for an annual fee of $185,000. What are the annual net pretax benefits to Ralph…
Carson Company is a large manufacturing firm in California that was created 20 years ago by the Carson family. It was initially financed with an equity investment by the Carson family and ten other individuals. Over time, Carson Company has obtained substantial loans from finance companies and commercial banks. The interest rates on those loans are tied to market interest rates and are adjusted every six months. Thus, Carson’s cost of obtaining funds is sensitive to interest rate movements. The company has a credit line with a bank in case it suddenly needs to obtain funds for a temporary period. It has purchased Treasury securities that it could sell if it experiences any liquidity problems. Carson Company has assets valued at approximately $50 million and generates sales of nearly $100 million per year. Some of its growth is attributed to its acquisitions of other firms. Because it expects the economy to be strong in the future, Carson plans to grow by expanding its business and…
Bulldogs Inc. is a retail mail order firm that currently uses a centralized collection system that requires all checks to be sent to its flotation headquarters. An average of 6 days is required for mailed checks to be received, 3 days for Bulldogs Inc. to process them, and 2 days for the checks to clear through its bank. A proposed lockbox system would decrease the mailing and processing time to 2 days and the check clearing time for 1 day. Bulldogs Inc. has an average daily collection of P250,000. If Bulldogs Inc. adopts this proposed lockbox system, its average cash balance will increase by A. P750,000 B. P1,200,000 C. P2,000,000 D. P450,000
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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.
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From California to New York, legislative bodies across the United States are considering eliminating or reducing the surcharges that banks impose on noncustomers, who make $12 million in withdrawals from other banks’ ATM machines. On average, noncustomers earn a wage of $26 per hour and pay ATM fees of $3.50 per transaction. It is estimated that banks would be willing to maintain services for 4 million transactions at $1.50 per transaction, while noncustomers would attempt to conduct 19 million transactions at that price. Estimates suggest that, for every 1 million gap between the desired and available transactions, a typical consumer will have to spend an extra minute traveling to another machine to withdraw cash. Based on this information, what would be the nonpecuniary cost of legislation that would place a $1.50 cap on the fees banks can charge for noncustomer transactions? Instructions: Enter your responses rounded to the nearest penny (two decimal places)
You are an assistant in the accounting department of Hasher Electronics, a small electronicsretailer. Hasher has a loan that requires the company to maintain a minimum cash balance of$125,000, as reported on its year-end balance sheet. Although Hasher has struggled in recent years,as of yesterday it looked as though Hasher would be able to meet this requirement. The cash balance in Hasher’s general ledger was $130,000 and the company’s credit manager was expecting toreceive a $30,000 electronic funds transfer that day on account from your biggest customer. Yourdepartment supervisor had been worried about meeting the loan requirement, so she had delayedmaking payments to Hasher’s suppliers for several days. But in anticipation of receiving the EFT,she decided yesterday to issue checks to suppliers totaling $15,000.It is now the last day of the fiscal year and your supervisor approaches you with a problem.Your big customer had backed out at the last minute, indicating it had “some…
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