The financial manager of JAC Cosmetics is considering opening a lockbox in Pittsburgh. Checks cleared through the lockbox will amount to $26,000 per day. The lockbox will make cash available to the company three days earlier than is currently the case. Suppose that the bank offers to run the lockbox for a $39,600 compensating balance, answer the following: a-1. Calculate the additional available cash generated by the lock-box system. Additional available cash a-2. Is the lockbox worthwhile? Yes O No b. Suppose that the bank offers to run the lockbox for a fee of $0.26 per check cleared instead of a compensating balance. Assume an interest rate of 6% per year. What must the average check size be for the fee alternative to be less costly? Use a 365-day year. (Round your answer to the nearest whole number.) Average check size

The financial manager of JAC Cosmetics is considering opening a lockbox in Pittsburgh. Checks cleared through the lockbox will amount to $26,000 per day. The lockbox will make cash available to the company three days earlier than is currently the case. Suppose that the bank offers to run the lockbox for a $39,600 compensating balance, answer the following: a-1. Calculate the additional available cash generated by the lock-box system. Additional available cash a-2. Is the lockbox worthwhile? Yes O No b. Suppose that the bank offers to run the lockbox for a fee of $0.26 per check cleared instead of a compensating balance. Assume an interest rate of 6% per year. What must the average check size be for the fee alternative to be less costly? Use a 365-day year. (Round your answer to the nearest whole number.) Average check size

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter17: The Management Of Cash And Marketable Securities

Section: Chapter Questions

Problem 2P

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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. Thank you so much!
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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.)
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