FUND. OF CORPORATE FIN. 18MNTH ACCESS
15th Edition
ISBN: 9781259811913
Author: Ross
Publisher: MCG CUSTOM
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 19, Problem 11QP
Summary Introduction
To compute: Whether the lockbox system must be accepted and the variation in the answer if there was a fixed charge of $5,000 for one year.
Introduction:
A lockbox is a distinct post office box that the companies use to speed up the collection of accounts receivable. The purpose of the lockbox is to reduce the collection time of accounts receivable.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
CH5 #10 A company is considering two alternative marketing strategies for a new product. Introducing the product will require an outlay of $15,000. With a low price, the product will generate cash proceeds of $10,000 per year and will have a life of two years. With a high price, the product will generate cash proceeds of $18,000 but will have a life of only one year. The hurdle rate for this project is 0.05.
Which marketing strategy should be accepted?
Calculating Flotation Costs [LO4] Suppose your company needs $24 million to build a new assembly line. Your target debt-equity ratio is .75. The flotation cost for new equity is 7 percent, but the flotation cost for debt is only 3 percent. Your boss has decided to fund the project by borrowing money because the flotation costs are lower and the needed funds are relatively small.a. What do you think about the rationale behind borrowing the entire amount?b. What is your company’s weighted average flotation cost, assuming all equity is raised externally?
7.4 q1
A chain of take-away pizza stores is considering introducing a new line of gluten-free pizzas. Net revenue from the new line of pizzas is expected to total $400,000 per year, but 20% of this net revenue is forecast to consist of people switching from the regular pizzas to the gluten-free pizzas.
How would you describe this situation in terms of the NPV analysis upon which the situation will be based.
a.
There is a negative externality equal to $80,000 which should be included in the NPV analysis for the gluten-free pizza project.
b.
There is a positive externality equal to $80,000 which should be included in the NPV analysis for the gluten-free pizza project.
c.
There is a negative externality equal to $320,000 which should be included in the NPV analysis for the gluten-free pizza project.
d.
There is a positive externality equal to $320,000 which should be included in the NPV analysis for the gluten-free pizza project.
Chapter 19 Solutions
FUND. OF CORPORATE FIN. 18MNTH ACCESS
Ch. 19.1 - What is the transaction motive, and how does it...Ch. 19.1 - What is the cost to the firm of holding excess...Ch. 19.2 - Which would a firm be most interested in reducing,...Ch. 19.2 - Prob. 19.2BCQCh. 19.2 - Prob. 19.2CCQCh. 19.3 - Prob. 19.3ACQCh. 19.3 - Prob. 19.3BCQCh. 19.4 - Prob. 19.4ACQCh. 19.4 - What is a zero-balance account? What is the...Ch. 19.5 - What are some reasons why firms find themselves...
Ch. 19.5 - Prob. 19.5BCQCh. 19.5 - Why are money market preferred stocks an...Ch. 19.A - Prob. 1ACQCh. 19.A - Prob. 2BCQCh. 19.A - Describe how the MillerOrr model works.Ch. 19.A - Changes in Target Cash Balances Indicate the...Ch. 19.A - Using the BAT Model Given the following...Ch. 19.A - Prob. 3QPCh. 19.A - Prob. 4QPCh. 19.A - Determining Optimal Cash Balances The All Day...Ch. 19.A - Prob. 6QPCh. 19.A - Prob. 7QPCh. 19.A - Interpreting MillerOrr Based on the MillerOrr...Ch. 19.A - Prob. 9QPCh. 19.A - Using BAT Rise Against Corporation has determined...Ch. 19 - Prob. 19.1CTFCh. 19 - Prob. 19.2CTFCh. 19 - Prob. 19.3CTFCh. 19 - Prob. 1CRCTCh. 19 - Prob. 2CRCTCh. 19 - Prob. 3CRCTCh. 19 - Prob. 4CRCTCh. 19 - Prob. 5CRCTCh. 19 - Prob. 6CRCTCh. 19 - Collection and Disbursement Floats [LO1] Which...Ch. 19 - Prob. 8CRCTCh. 19 - Prob. 9CRCTCh. 19 - Prob. 10CRCTCh. 19 - Prob. 11CRCTCh. 19 - Prob. 12CRCTCh. 19 - Prob. 13CRCTCh. 19 - Prob. 1QPCh. 19 - Calculating Net Float [LO1] Each business day, on...Ch. 19 - Prob. 3QPCh. 19 - Float and Weighted Average Delay [LO1] Your...Ch. 19 - NPV and Collection Time [LO2] Your firm has an...Ch. 19 - Using Weighted Average Delay [LO1] A mail-order...Ch. 19 - Prob. 7QPCh. 19 - Lockboxes and Collections [LO2] It takes Cookie...Ch. 19 - Prob. 9QPCh. 19 - Prob. 10QPCh. 19 - Prob. 11QPCh. 19 - Calculating Transactions Required [LO2] Cow Chips,...Ch. 19 - Prob. 1MCh. 19 - Prob. 2MCh. 19 - Prob. 3M
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Q.3 (x1=70000 x2=10%) The IPS company has installed a system to help reduce the number of defective products. The capital investment in the system is $X1, and the projected annual savings are tabled below. The system's market value at the EOY five is negligible, and the MARR is x2% per year A. What is the FW of this investment? Based on econonical deciston rule, is this a good investment. b. What is the IRR of the system? Based on economical decision rule, is this a good investmentr. C. What is the discounted pavback period for this investment.arrow_forwardQ6) IBM networks want to modernize their networking system. Proposals have been received from two major software companies. The first proposal cost $6million but will raise the firm’s annual cash flows by $3million. The second proposal cost $7million and provides cash flow of $3.5million a year. Both projects have a life span of 3 years. Assuming that the cost of capital is 8%, which proposal may be recommended on the basis of Net Present Value criteria.arrow_forwardM7 Q4 P1 The R. Morin Construction Company needs to borrow $100,000 to help finance the cost of a new $150,000 hydraulic crane used in the firm's commercial construction business. The crane will pay for itself in one year, and the firm is considering the following alternatives for financing its purchase: Alternative A. The firm's bank has agreed to lend the $100,000 at a rate of 14 percent. Interest would be discounted, and a 15 percent compensating balance would be required. However, the compensating-balance requirement is not binding on the firm because it normally maintains a minimum demand deposit (checking account) balance of $25,000 in the bank. Alternative B. The equipment dealer has agreed to finance the equipment with a 1-year loan. The $100,000 loan requires payment of principal and interest totaling $116,300. a. Which alternative should Morin select? b. If the bank's compensating-balance requirement had necessitated idle demand…arrow_forward
- Q6) IBM networks want to modernize their networking system. Proposals have been received from two major software companies. The first proposal cost $6million but will raise the firm’s annual cash flows by $3million. The second proposal cost $7million and provides cash flow of $3.5million a year. Both projects have a life span of 3 years. Assuming that the cost of capital is 8%, which proposal may be recommended on the basis of Net Present Value criteria. Select one: a. Project B, NPV 1731290 b. Project A, NPV 20198 c. Project B, NPV 2019839 d. Project A, NPV 2019839arrow_forwardQuestion 02 Reneta group is evaluating a new automatic surveillance system to replace their current security system in Savar. You are currently working as Finance manager in the Group, and Reneta has asked you to conduct a sensitivity analysis. Currently, Reneta group is renting a premise of 50,000 Square feet in Savar, and Reneta Fabrics is planning to rent another 10,000 Square feet from 2023. The new automatic surveillance system will cost $450,000. The cost will be depreciated straight-line to zero over the system’s four-year expected life. Reneta Group expects to have a total output of 50,000 units of cloths at USD 3 per cloth from Reneta Fabrics. Reneta thinks that the new automatic surveillance system will increase EBIT by $125,000 per year. The system is expected to be worth $250,000 at the end of four years. The tax rate is 34 percent. Calculate the NPV of this project if the discount rate is 17%. Conduct sensitivity analysis with a discount rate of 12%. Show detailed…arrow_forward2.) Pound 0.64/$ in London, 1.04/Euro in New York, and Pound 0.64/Euro in Frankfurt. Depending on this information, how do you think you can make a profit by trading currency in the given monetary centers? calculate your profit by explaining transactionsarrow_forward
- Question 2The Government of Ghana in an attempt to stimulate the Ghanaian economy after the COVID 19 pandemic has set aside GH¢600 million as a stimulus package for businesses. These stimulus packages are to be in the form of soft loans for businesses. However, some believe that these loans must be extended to firms in industries that are worst hit by the pandemic. As the Finance Director of your company, you have been tasked to present a proposal to the Board of Directors of your company for consideration. Your proposal must address the following;i. The negative impact of the COVID 19 pandemic on the operations of your firm, justifying why your firm needs such a stimulus package? Your arguments should be situated within the industry within which you operate.ii. With your understanding of lessons on capital structure, which other four (4) factors should your firm consider before choosing this source of debt finance?iii. Discuss four (4) risks that your company is likely to be exposed…arrow_forwardQuestion 2The Government of Ghana in an attempt to stimulate the Ghanaian economy after the COVID 19 pandemic has set aside GH¢600 million as a stimulus package for businesses. These stimulus packages are to be in the form of soft loans for businesses. However, some believe that these loans must be extended to firms in industries that are worst hit by the pandemic. As the Finance Director of your company, you have been tasked to present a proposal to the Board of Directors of your company for consideration. Your proposal must address the following;i. The negative impact of the COVID 19 pandemic on the operations of your firm, justifying why your firm needs such a stimulus package? Your arguments should be situated within the industry within which you operate.ii. With your understanding of lessons on capital structure, which other four (4) factors should your firm consider before choosing this source of debt finance?iii. Discuss four (4) risks that your company is likely to be exposed…arrow_forwardH2. .  Time remaining: 00:09:29 Finance You own a coal mining company and are considering opening a new mine. The mine itself will cost $120 million to open. If this money is spent immediately, the mine will generate $22 million for the next 10 years. After that, the coal will run out and the site must be cleaned and maintained at environmental standards. The cleaning and maintenance are expected to cost $1.8 million per year in perpetuity. What does the IRR rule say about whether you should accept this opportunity? (Hint: Consider the number of sign changes in the cash flows.) If the cost of capital is 7.6%, what does the NPV rule say? Question content area bottom Part 1) What does the IRR rule say about whether you should accept this opportunity? (Select the best choice below.) A. Accept the opportunity because the IRR is greater than the cost of capital. B. There are two IRRs, so you cannot use the IRR as a criterion for accepting the opportunity. C. Reject…arrow_forward
- [6:46 am, 15/01/2022] Mahmoud: 19. Cost of Capital. Pollution Busters, Inc., is considering a purchase of 10 additional carbon sequesters for $100,000 apiece. The sequesters last for only 1 year until saturated with carbon. Then the carbon is removed and sold. (O LO4) a. Suppose the government guarantees the price of carbon. At this price, the payoff after 1 year is guaranteed to be $115,000. How would you determine the opportunity cost of capital for this investment? b. Suppose instead that the sequestered carbon has to be sold on the London Carbon Exchange. Carbon prices have been extremely volatile, but Pollution Busters' CFO learns that average rates of return from investment on that exchange have been about 20%. She thinks this is a reasonable forecast for the future. What is the opportunity cost of capital in this case? Is the purchase of an additional sequester a worthwhile capital investment if she expects that the price of extracted carbon will $115,000? please show the strpsarrow_forwardA4 Finance Suppose the FED has just learned that the Treasury will need to borrow a much larger amount of money than originally expected. Discuss how this incident could affect the degree to which the FED changes their monetary policy. If there were changes, would you agree with them?arrow_forwardCh 7. Decision Trees. For questions 12 and 13, please use the following information: Ang Electronics, Inc., has developed a new DVDR. If the DVDR is successful, the present value of the payoff (when the product is brought to market) is $28.6 million. If the DVDR fails, the present value of the payoff is $10.2 million. If the product goes directly to market, there is a 40 percent chance of success. Alternatively, the company can delay the launch by one year and spend $1.42 million to test market the DVDR. Test marketing would allow the firm to improve the product and increase the probability of success to 70 percent. The appropriate discount rate is 11 percent. Calculate the NPV of test marketing before going to market. Format answer as "XX,XXX,XXX.XX"arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
Capital Budgeting Introduction & Calculations Step-by-Step -PV, FV, NPV, IRR, Payback, Simple R of R; Author: Accounting Step by Step;https://www.youtube.com/watch?v=hyBw-NnAkHY;License: Standard Youtube License