Principles of Corporate Finance
13th Edition
ISBN: 9781260465099
Author: BREALEY, Richard
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Question
Chapter 30, Problem 25PS
a)
Summary Introduction
To determine: Whether lock box is worthwhile or not.
b)
Summary Introduction
To determine: Average check balance size.
c)
Summary Introduction
To determine: Reasons that are needed to know interest rates in part (a) and part (b)
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Students have asked these similar questions
The financial manager of JAC Cosmetics is considering opening a lockbox in Pittsburgh. Checks cleared through the lockbox will
amount to $26,000 per day. The lockbox will make cash available to the company three days earlier than is currently the case.
Suppose that the bank offers to run the lockbox for a $39,600 compensating balance, answer the following:
a-1. Calculate the additional available cash generated by the lock-box system.
Additional available cash
a-2. Is the lockbox worthwhile?
Yes
O No
b. Suppose that the bank offers to run the lockbox for a fee of $0.26 per check cleared instead of a compensating balance. Assume an
interest rate of 6% per year. What must the average check size be for the fee alternative to be less costly? Use a 365-day year. (Round
your answer to the nearest whole number.)
Average check size
Example
One of the companies adopts a central system for the payment of
payment bills through the general administration, and this requires
an average of 4 days for the checks to reach the customers as well
as
1,5
The day of registration of checks before they are deposited in the
bank, and the average company receipts are 500 thousand dinars
per day. The company is studying the possibility of using mailboxes
through renting, and this will reduce the time for mailing checks by
an amount
2,5
day, and the time required to prepare checks for deposit is reduced
by one day. Required:
1. What is the amount of cash that can be released in this process?
2. Determine the alternative cost of the released funds if the return
on financial instruments
Short term 5%?
3. Is it feasible to use this system when considering the alternative
cost?
For the liberated money, if the costs of the local mailbox system are
75,000 dinars annually?
Anne Teak, the financial manager of a furniture manufacturer, is considering operating a lock-box system. She forecasts that 700 payments a day will be made to lock boxes with an average payment size of $3,500. The bank’s charge for operating the lock boxes is $0.50 a check. The interest rate is 0.011% per day.
a. If the lock box makes the cash available 2 days earlier, calculate the net daily advantage of the system. (Do not round intermediate calculations.)
Anne Teak, the financial manager of a furniture manufacturer, is considering operating a lock-box system. She forecasts that 700 payments a day will be made to lock boxes with an average payment size of $3,500. The bank’s charge for operating the lock boxes is $0.50 a check. The interest rate is 0.011% per day.
a. If the lock box makes the cash available 2 days earlier, calculate the net daily advantage of the system. (Do not round intermediate calculations.)
Chapter 30 Solutions
Principles of Corporate Finance
Ch. 30 - Prob. 1PSCh. 30 - Components of working capital True or false? a....Ch. 30 - Inventory True or false? a. Just-in-time inventory...Ch. 30 - Inventory What are the trade-offs involved in the...Ch. 30 - Prob. 5PSCh. 30 - Prob. 6PSCh. 30 - Prob. 7PSCh. 30 - Prob. 8PSCh. 30 - Prob. 9PSCh. 30 - Credit terms Phoenix Lambert currently sells its...
Ch. 30 - Prob. 11PSCh. 30 - Prob. 12PSCh. 30 - Prob. 13PSCh. 30 - Prob. 14PSCh. 30 - Prob. 15PSCh. 30 - Credit policy How should your willingness to grant...Ch. 30 - Prob. 17PSCh. 30 - Prob. 18PSCh. 30 - Prob. 19PSCh. 30 - Prob. 20PSCh. 30 - Cash management Complete the passage that follows...Ch. 30 - Prob. 22PSCh. 30 - Prob. 23PSCh. 30 - Prob. 24PSCh. 30 - Prob. 25PSCh. 30 - Prob. 26PSCh. 30 - Prob. 27PSCh. 30 - Prob. 28PSCh. 30 - Prob. 29PSCh. 30 - Prob. 30PSCh. 30 - Prob. 31PSCh. 30 - Prob. 32PSCh. 30 - Prob. 34PSCh. 30 - Prob. 35PSCh. 30 - Prob. 36PSCh. 30 - After-tax yields Suppose you are a wealthy...Ch. 30 - Prob. 38PSCh. 30 - Prob. 39PS
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