EBK CORPORATE FINANCE
11th Edition
ISBN: 8220102798878
Author: Ross
Publisher: YUZU
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Question
Chapter 27, Problem 11QP
Summary Introduction
To compute: Whether the lockbox system can be adopted and the changes in answer when fixed charge is added.
Lockbox System:
Lockbox system is used by the companies to ensure speedily cash collection and to intercept the payment. The special post office boxes are used by the companies that are also called lockbox system.
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Students have asked these similar questions
Bird's Eye Treehouses, Incorporated, a Kentucky company, has determined that a
majority of its customers are located in the Pennsylvania area. Therefore, it is
considering using a lockbox system offered by a bank located in Pittsburgh. The bank
has estimated that use of the system will reduce collection time by 1.5 days.
Average number of payments per day
Average value of payment
Variable lockbox fee (per transaction)
Effective annual rate on money market
securities
825
$745
$.15
a. NPV
b. NPV
5.5%
The total collection time will be reduced by three days if the lockbox system is adopted.
a. What is the NPV of the new lockbox system? (Do not round intermediate calculations
and round your answer to 2 decimal places, e.g., 32.16.)
b. Suppose in addition to the variable charge, there is an annual fixed charge of $5,000
to be paid at the end of each year. What is the NPV now? (A negative answer should
be indicated by a minus sign. Do not round intermediate calculations and round
your answer…
Bird's Eye Treehouses Inc. has determined that a majority of its customers are located in the Winnipeg area. It therefore is
considering using a lockbox system offered by a bank in Manitoba. The bank has estimated that use of the system will reduc
collection time by 1.5 days.
Average number of payments per day
760
Average value of payment
$ 770
Variable lockbox fee (per transaction)
$ 0.10
Annual interest rate on money market securities
4.0%
e-1. What is the NPV of the new lockbox system? (Do not round intermediate calculations. Round the final answer to 2
decimal places. Omit "$" sign in your response.)
NPV
$170558.7
a-2. Should the lockbox project be accepted?
13
Yes
No
b-1. If there were a fixed charge of $7,000 per year in addition to the variable charge, what is the NPV of the new lockbox
system? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round the final
answer to 2 decimal places. Omit "$" sign in your response.)
NPV
$
b-2.…
Bird's Eye Treehouses, Incorporated, a Kentucky company, has determined that a
majority of its customers are located in the Pennsylvania area. It therefore is considering
using a lockbox system offered by a bank located in Pittsburgh. The bank has estimated
that use of the system will reduce collection time by 1.5 days. Assume 365 days a year.
Average number of payments per day
Average value of payment
Variable lockbox fee (per transaction)
Annual interest rate on money market securities
880
$830
$.10
3.2%
a. What is the NPV of the new lockbox system? (Do not round intermediate
calculations and round your answer to 2 decimal places, e.g., 32.16.)
b. Suppose in addition to the variable charge that there is an annual fixed charge of
$3,000 to be paid at the end of each year. What is the NPV now? (A negative answer
should be indicated by a minus sign. Do not round intermediate calculations and
round your answer to 2 decimal places, e.g., 32.16.)
Answer is complete but not entirely…
Chapter 27 Solutions
EBK CORPORATE FINANCE
Ch. 27 - Cash Management Is it possible for a firm to have...Ch. 27 - Cash Management What options are available to a...Ch. 27 - Prob. 3CQCh. 27 - Cash Management versus Liquidity Management What...Ch. 27 - Prob. 5CQCh. 27 - Collection and Disbursement Floats Which would a...Ch. 27 - Prob. 7CQCh. 27 - Short-Term Investments For each of the short-term...Ch. 27 - Prob. 9CQCh. 27 - Prob. 10CQ
Ch. 27 - Prob. 11CQCh. 27 - Prob. 12CQCh. 27 - Calculating Float In a typical month, the Warren...Ch. 27 - Calculating Net Float Each business day, on...Ch. 27 - Costs of Float Purple Feet Wine, Inc., receives an...Ch. 27 - Float and Weighted Average Delay Your neighbor...Ch. 27 - Prob. 5QPCh. 27 - Using Weighted Average Delay A mail-order firm...Ch. 27 - Prob. 7QPCh. 27 - Lockboxes and Collections It takes Cookie Cutter...Ch. 27 - Value of Delay No More Pencils, Inc., disburses...Ch. 27 - NPV and Reducing Float No More Books Corporation...Ch. 27 - Prob. 11QPCh. 27 - Prob. 12QPCh. 27 - Prob. 1MCCh. 27 - Prob. 2MCCh. 27 - What cost of ACH transfers would make the company...
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