UPENN: LOOSE LEAF CORP.FIN W/CONNECT
17th Edition
ISBN: 9781260361278
Author: Ross
Publisher: McGraw-Hill Publishing Co.
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Chapter 27, Problem 8QP
Lockboxes and Collections It takes Cookie Cutter Modular Homes, Inc., about five days to receive and deposit checks from customers. Cookie Culler's management is considering a lockbox system to reduce the firm's collection times. It is expected that the lockbox system will reduce receipt and deposit times to three days total. Average daily collections are $l26, 500, and the required
- a. What is the reduction in outstanding cash balance as a result of implementing the lockbox system?
- b. What is the dollar return that could be earned on these savings?
- c. What is the maximum monthly charge Cookie Culler should pay for this lockbox system if the payment is due at the end of the month? What if the payment is due at the beginning of the month?
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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…
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, 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
850
$ 800
$.10
a. NPV
b. NPV
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.)
Chapter 27 Solutions
UPENN: LOOSE LEAF CORP.FIN W/CONNECT
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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