Contemporary Financial Management, Loose-leaf Version
14th Edition
ISBN: 9781337090636
Author: R. Charles Moyer, James R. McGuigan, Ramesh P. Rao
Publisher: South-Western College Pub
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Question
Chapter 17, Problem 6P
a.
Summary Introduction
To determine: The net pre-tax benefits if annual sales are $15 million.
a.
Expert Solution
Answer to Problem 6P
The net pre-tax benefits if annual sales are $15 million is $8,630.14.
Explanation of Solution
Determine the annual pre-tax earnings
Therefore, the amount of funds released is $8,630.14.
Determine the additional collection costs
Therefore, the additional collection costs is $14,250.
Determine the net pre-tax benefits
Therefore, the net pre-tax benefits is -$5,619.86.
b.
Summary Introduction
To determine: The net pre-tax benefits if annual sales are $75 million.
b.
Expert Solution
Answer to Problem 6P
The net pre-tax benefits if annual sales are $75 million is $28,900.68.
Explanation of Solution
Determine the net pre-tax benefits
Therefore, the net pre-tax benefits is -$28,900.68.
c.
Summary Introduction
To determine: The net pre-tax benefits if annual sales are $15 million with 2 days of collection time.
c.
Expert Solution
Answer to Problem 6P
The net pre-tax benefits if annual sales are $15 million is $2,753.42.
Explanation of Solution
Determine the net pre-tax benefits
Therefore, the net pre-tax benefits is $2,753.42.
d.
Summary Introduction
To determine: The net pre-tax benefits if annual sales are $75 million with 2 days of collection time.
d.
Expert Solution
Answer to Problem 6P
The net pre-tax benefits if annual sales are $75 million is $25,767.12.
Explanation of Solution
Determine the net pre-tax benefits
Therefore, the net pre-tax benefits is $25,767.12.
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Students have asked these similar questions
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.)
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.)
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.
Chapter 17 Solutions
Contemporary Financial Management, Loose-leaf Version
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