Corporate Finance (The Mcgraw-hill/Irwin Series in Finance Insurance and Real Estate)
11th Edition
ISBN: 9781259295881
Author: Ross
Publisher: MCG
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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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Inc. currently fills mail orders from all over the country and receipts were received in its head office. The company’s average accounts receivable is P3,125,000 and is financed by a bank loan with 10% interest. Inc. is considering a regional lockbox system to speed up collections. This system is projected to reduce the average accounts receivable by 15%. The annual cost of the lockbox system is P25,000. What is the estimated net annual savings in implementing the lockbox system?
P28,455P22,985P25,750P21,875
Bulldogs Inc. deals with various clients throughout the city and is attempting to collect its accounts receivable more efficiently. A major bank has offered a lock-box system for Bulldogs at a cost of P180,000 per year. Bulldogs averages 300 receipts daily at an average of P5,000 each. Short-term interest is at 8% annually. What reduction in average collection time would be needed to justify the lock-box system? (Use a 360-day year)No need to type the word "Days" just the number e.g. X.XX
Bulldogs Inc. currently fills mail orders from all over the country and receipts were received in its head office. The company’s average accounts receivable is P3,125,000 and is financed by a bank loan with 10% interest. Bulldogs is considering a regional lockbox system to speed up collections. This system is projected to reduce the average accounts receivable by 15%. The annual cost of the lockbox system is P25,000. What is the estimated net annual savings in implementing the lockbox system?
P22,985
P25,750
P28,455
P21,875
Chapter 27 Solutions
Corporate Finance (The Mcgraw-hill/Irwin Series in Finance Insurance and Real Estate)
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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- 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…arrow_forwardCredit screening. Tennindo, Inc. is starting up its new, cost-efficient gaming system console, the yuu. Tennindo currently has 4,500 cash-paying customers and makes a profit of $70 per unit. Tennindo wants to expand its customer base by allowing customers to buy on credit. It estimates that credit sales will bring in an additional 1,400 customers per year, but that there will also be a default rate on credit sales of 5%. It costs $220 to make a yuu, which retails for $290. If all customers (old and new) buy on credit, what is the cost of bad debt without credit screening? What is the most Tennindo would pay for credit screening that accurately identifies bad-debt customers prior to the sale? What are the increased profits from adding credit sales for customers with and without credit screening? Should Tennindo offer credit sales if credit screening costs $10 per customer? If all customers (old and new) buy on credit, what is the cost of bad debt without…arrow_forwardA company engaged high-end apparel sells for cash only. The marketing manager is contemplating of offering credit sales allowing 90 days to pay. Buyers understood the time value of money, so they would all wait and pay on the 90th day. As a result, the company has to carry big balances of receivable and the company would need to borrow funds from a bank at a nominal rate of 12% compounding daily based on approximate 360 days a year. The company wants to increase the base prices of its products by exactly enough to offset the bank’s interest charges. To the closest percentage point, by how much should the company raise the product’s prices?arrow_forward
- From California to New York, legislative bodies across the United States are considering eliminating or reducing the surcharges that banks impose on noncustomers, who make $12 million in withdrawals from other banks’ ATM machines. On average, noncustomers earn a wage of $26 per hour and pay ATM fees of $3.50 per transaction. It is estimated that banks would be willing to maintain services for 4 million transactions at $1.50 per transaction, while noncustomers would attempt to conduct 19 million transactions at that price. Estimates suggest that, for every 1 million gap between the desired and available transactions, a typical consumer will have to spend an extra minute traveling to another machine to withdraw cash. Based on this information, what would be the nonpecuniary cost of legislation that would place a $1.50 cap on the fees banks can charge for noncustomer transactions? Instructions: Enter your responses rounded to the nearest penny (two decimal places)arrow_forwardNo More Books Corporation has an agreement with Floyd Bank whereby the bank handles $3.4 million in collections per day and requires a $320,000 compensating balance. No More Books is contemplating canceling the agreement and dividing its eastern region so that two other banks will handle its business. Banks A and B will each handle $1.7 million of collections per day, and each requires a compensating balance of $175,000. No More Books’s financial management expects that collections will be accelerated by one day if the eastern region is divided. a. What is the NPV of accepting the system? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567.) b. What will be the annual net savings? Assume that the T-bill rate is 2.5 percent annually.arrow_forwardA proposed relaxation of credit standards of Bulldogs Inc. will increase the balance of accounts receivable by P95,000. The proposed relaxation will also increase the average collection period from 16 days to 3 weeks. How much is the increase in budgeted credit sales of Bulldogs Inc. if the firm increase the average collection period to 3 weeks? Use 360 days. 3,025,00 6,300,000 6,840,000 1,750,000arrow_forward
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