Fundamentals of Financial Management (MindTap Course List)
15th Edition
ISBN: 9781337671002
Author: Brigham
Publisher: Cengage
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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.
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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…
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
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