Fundamentals of Financial Management (MindTap Course List)
15th Edition
ISBN: 9781337395250
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
thumb_up100%
Chapter 16, Problem 9P
a.
Summary Introduction
To determine: The free cash generated if the lockbox system is implemented, the frequency of the cash generated and the effect of the growth.
Introduction:
Lockbox Collection System: The lockbox collection system is that system in which the firms direct their customers to send the payments through a lockbox which is operated by a bank. The customers of a firm can send payments through these lockboxes. This system is used so that the receipt of the cash by the sellers can be collected fast.
b.
Summary Introduction
To determine: The worth of the lockbox system on a yearly basis if the
c.
Summary Introduction
To determine: The highest monthly charge for the lockbox system.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
LOCKBOX SYSTEM Fisher-Gardner Corporation (FGC) began operations 5 years ago as
a small firm serving customers in the Chicago area. However, its reputation and market area grew quickly. Today FGC has customers all over the United States. Despite its
broad customer base, FGC has maintained its headquarters in Chicago, and it keeps its
central billing system there. On average, it takes 7 days from the time customers mail in
payments until FGC can receive, process, and deposit them. FGC would like to set up a
lockbox collection system, which it estimates would reduce the time lag from customer
mailing to deposit by 2 days—bringing it down to 5 days. FGC receives an average of
$2,300,000 in payments per day.
a. How much free cash would FGC generate if it implemented the lockbox system?
Would this be a one-time cash flow or a recurring one, assuming the company ceases
to grow? How would growth affect your answer?
b. If FGC has an opportunity cost of 6%, how much is the lockbox system worth…
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…
1. 2. Express Drugs RX operates a Mail order pharmaceutical business in New Jersey the firm receives an average of $325,000 in payments per day on average it takes 4 days from the time customers mail their checks until the firm receives them. The company is considering establishing a lock box system, in which customers payments would be sent to nearby banks local in terms of the purchasers instead of directly to New Jersey banks in the lock box locations would then wire the daily receipts to a single (concentration) bank.
The lock box system which would consist of 10 local depository banks and a concentration bank would cost Express Drugs RX a total of $8,500 per month under the system customers’ checks would be received at the tent lock box locations one day after they are mailed and the daily total from each of the 10 lockboxes locations would be wired to the concentration bank at a cost of $11.75 per transfer
Assume the firm could earn 10% on short-term…
Chapter 16 Solutions
Fundamentals of Financial Management (MindTap Course List)
Ch. 16 - What are some pros and cons of holding high levels...Ch. 16 - Prob. 2QCh. 16 - What are the two definitions of cash, and why do...Ch. 16 - Prob. 4QCh. 16 - What are the four key factors in a firm's credit...Ch. 16 - Prob. 6QCh. 16 - Why is some trade credit called free while other...Ch. 16 - Define each of the following loan terms, and...Ch. 16 - Why are accruals called spontaneous sources of...Ch. 16 - Indicate using a (+), (), or (0) whether each of...
Ch. 16 - CASH CONVERSION CYCLE Parramore Corp has 12...Ch. 16 - RECEIVABLES INVESTMENT Leyton Lumber Company has...Ch. 16 - COST OF TRADE CREDIT AND BANK LOAN Lancaster...Ch. 16 - Prob. 4PCh. 16 - RECEIVABLES INVESTMENT McEwan Industries sells on...Ch. 16 - WORKING CAPITAL INVESTMENT Pasha Corporation...Ch. 16 - Prob. 7PCh. 16 - CURRENT ASSETS INVESTMENT POLICY Rentz Corporation...Ch. 16 - Prob. 9P
Knowledge Booster
Similar questions
- Galaxy Cloud Services operates several data centers across the United States containing servers that store and process the data on the Internet. Suppose that Galaxy Cloud Services currently has five outdated data centers: one each in Michigan, Ohio, and California and two in New York. Management is considering increasing the capacity of these data centers to keep up with increasing demand. Each data center contains servers that are dedicated to Secure data and to Super Secure data. The cost to update each data center and the resulting increase in server capacity for each type of server are as follows: The projected needs are for a total increase in capacity of 90 Secure servers and 90 Super Secure servers. Management wants to determine which data centers to update to meet projected needs and, at the same time, minimize the total cost of the added capacity. Formulate a binary integer programming model that could be used to determine the optimal solution to the capacity increase question facing management. Solve the model formulated in part (a) to provide a recommendation for management.arrow_forwardACME Corporation is a software development company that develops software for their clients. Their most popular product of them all is an accounting software suite. It is targeted for small and medium enterprises, and available to be bought in different online software stores. Apart from the basic cashflow management features, it also has various plugins to integrate different business operations such as inventory, purchases and invoicing. A perpetual license costs a company around HK$100,000 without the need to pay periodically for maintenance. a) A sales representative had been approaching Company X proactively, asking them to buy a copy of their product. A manager in Company X thought the product itself is suitable, but rejected the offer, quoting the high price and their investment of buying the software is too risky for the company to bear. If you were an executive in ACME and wanted to address concerns expressed by Company X. What do you think would be a suitable alternative…arrow_forwardBulldogs 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. P450,000arrow_forward
- Smartlink Computer Services Co. specializes in customized software development for the broadcast and telecommunications industries. The company was started by three people to develop software primarily for a national network to be used in broadcasting national election results. After sustained and manageable growth for many years, the company has grown very fast over the last three years, doubling in size. This growth has placed the company in a challenging financial position. Within thirty days, Smartlink will need to renew its P300,000 loan with Philippine National Bank. This loan is classified as a current liability on Smartlink’s balance sheet. Steve Heart, president of Smartlink, is concerned about renewing the loan. The bank has requested Smartlink's most recent financial statements which appear below, including balance sheets for this year and last year. The bank has also requested four ratios relating to operating performance and liquidity. Required: Discuss (at least 4)…arrow_forwardSmartlink Computer Services Co. specializes in customized software development for the broadcast and telecommunications industries. The company was started by three people to develop software primarily for a national network to be used in broadcasting national election results. After sustained and manageable growth for many years, the company has grown very fast over the last three years, doubling in size. This growth has placed the company in a challenging financial position. Within thirty days, Smartlink will need to renew its P300,000 loan with Philippine National Bank. This loan is classified as a current liability on Smartlink’s balance sheet. Steve Heart, president of Smartlink, is concerned about renewing the loan. The bank has requested Smartlink's most recent financial statements which appear below, including balance sheets for this year and last year. The bank has also requested four ratios relating to operating performance and liquidity. Required: Give your analysis based on…arrow_forwardSmartlink Computer Services Co. specializes in customized software development for the broadcast and telecommunications industries. The company was started by three people to develop software primarily for a national network to be used in broadcasting national election results. After sustained and manageable growth for many years, the company has grown very fast over the last three years, doubling in size. This growth has placed the company in a challenging financial position. Within thirty days, Smartlink will need to renew its P300,000 loan with Philippine National Bank. This loan is classified as a current liability on Smartlink’s balance sheet. Steve Heart, president of Smartlink, is concerned about renewing the loan. The bank has requested Smartlink's most recent financial statements which appear below, including balance sheets for this year and last year. The bank has also requested four ratios relating to operating performance and liquidity. Required: Explain why the Philippine…arrow_forward
- QT, Inc., and Elppa Computers, Inc., compete with each other in the personal computer market. QT assembles computers to customer orders, building and delivering a computer within four days of a customer entering an order online. Elppa, on the other hand, builds computers for inventory prior to receiving an order. These computers are sold from inventory once an order is received. Selected financial information for both companies from recent financial statements follows (in millions): QT Elppa Sales $56,940 $120,357 Cost of merchandise sold 44,754 92,385 Inventory, beginning of period 1,382 6,317 Inventory, end of period 1,404 7,490 a. Determine for both companies (1) the inventory turnover and (2) the number of days' sales in inventory. Round your calculations and answers to one decimal place. Assume 365 days a year. QT Elppa 1. Inventory turnover fill in the blank 1 fill in the blank 2 2. Number of days' sales in inventory…arrow_forwardQT, Inc., and Elppa Computers, Inc., compete with each other in the personal computer market. QT assembles computers to customer orders, building and delivering a computer within four days of a customer entering an order online. Elppa, on the other hand, builds computers for inventory prior to receiving an order. These computers are sold from inventory once an order is received. Selected financial information for both companies from recent financial statements follows (in millions): QT Elppa Sales $56,940 $120,357 Cost of merchandise sold 44,754 92,385 Inventory, beginning of period 1,382 6,317 Inventory, end of period 1,404 7,490 a. Determine for both companies (1) the inventory turnover and (2) the number of days' sales in inventory. Round your calculations and answers to one decimal place. Assume 365 days a year. QT Elppa 1. Inventory turnover fill in the blank 1 fill in the blank 2 2. Number of days' sales in inventory…arrow_forwardQT, Inc. and Elppa Computers, Inc. compete with each other in the personal computer market. QT assembles computers to customer orders, building and delivering a computer within four days of a customer entering an order online. Elppa, on the other hand, builds computers for inventory prior to receiving an order. These computers are sold from inventory once an order is received. Selected financial information for both companies from recent financial statements follows (in millions): QT ElppaSales $56,940 $120,357Cost of goods sold 44,754 92,385Inventory, beginning of period 1,382 6,317Inventory, end of period 1,404 7,490a. Determine for both companies (1) the inventory turnover and (2) the…arrow_forward
- Emery Communications Company is considering the production and marketing of a communications system that will increase the efficiency of messaging for small businesses or branch offices of large companies. Each unit hooked into the system is assigned a mailbox number, which can be matched to a telephone extension number, providing access to messages 24 hours a day. Up to 20 units can be hooked into the system, allowing the delivery of the same message to as many as 20 people. Personal codes can be used to make messages confidential. Furthermore, messages can be reviewed, recorded, cancelled, replied to, or deleted all during the same message playback. Indicators wired to the telephone blink whenever new messages are present. To produce this product, a $1.75 million investment in new equipment is required. The equipment will last 10 years but will need major maintenance costing $150,000 at the end of its sixth year. The salvage value of the equipment at the end of 10 years is estimated…arrow_forwardNeon 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.arrow_forwardClamShell Security (CSS) is a division of a large, listed company, X3Cate Limited (X3L). The CSS Division produces software products to protect customer’s computers from infection from computer viruses and other malware. The sales of its products have been growing over the last few years as its products become more accepted in the market. The Board of X3L want to introduce a new product line that would specifically protect against Ransomware, a new security threat, particularly business customers. Each Divisional Manager can earn large bonuses on top of their base salaries if they maintain Return on Investment greater than 25% otherwise the bonus payments are halved. The following information is for the year that has just ended related to the CSS Division performance: Profit percentage (Return on Sales): 30% Sales revenue: $15 000 000 Average capital invested $18 000 000 Required:Using the same information provided for the past year, if X3l has a company-wide…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Essentials of Business Analytics (MindTap Course ...StatisticsISBN:9781305627734Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. AndersonPublisher:Cengage Learning
Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Essentials of Business Analytics (MindTap Course ...
Statistics
ISBN:9781305627734
Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:Cengage Learning
Financial Accounting: The Impact on Decision Make...
Accounting
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Cengage Learning