Your banker has analyzed your company account and has suggested that her bank has a cash management package for you. She suggests that with a concentration banking system, your float can be reduced by two days on average. You, of course, are delighted (you're not sure why), but you do know your average daily collections amount to $310,000. Your opportunity cost of funds is 7 percent. The bank provides this service for $53,000 plus a compensating balance in your current account of $75,500. (A compensating balance is the amount you are required to maintain interest free at that bank.) a. Is this package worth it? O No O Yes b. By how much? (Negative answer should be indicated by a minus sign.) Annual Saving $

Your banker has analyzed your company account and has suggested that her bank has a cash management package for you. She suggests that with a concentration banking system, your float can be reduced by two days on average. You, of course, are delighted (you're not sure why), but you do know your average daily collections amount to $310,000. Your opportunity cost of funds is 7 percent. The bank provides this service for $53,000 plus a compensating balance in your current account of $75,500. (A compensating balance is the amount you are required to maintain interest free at that bank.) a. Is this package worth it? O No O Yes b. By how much? (Negative answer should be indicated by a minus sign.) Annual Saving $

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter23: Other Topics In Working Capital Management

Section: Chapter Questions

Problem 11MC

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City Farm Insurance has collection centers across the country to speed up collections. The company also makes its disbursements from remote disbursement centers, so the firm's checks will take longer to clear the bank. Collection time has been reduced by two and one-half days and disbursement time increased by one and one-half days because of these policies. Excess funds are being invested in short-term instruments yielding 5 percent per annum. If City Farm has $4.90 million per day in collections and $3.90 million per day in disbursements, how many dollars has the cash management system freed up? Note: Enter your answer in dollars not in millions (e.g., $1,234,567). How much can City Farm earn in dollars per year on short-term investments made possible by the freed-up cash? Note: Enter your answer in dollars not in millions (e.g., $1,234,567).
City Farm Insurance has collection centers across the country to speed up collections. The company also makes its disbursements from remote disbursement centers. Collection time has been reduced by two days and disbursement time increased by one day because of these policies. Excess funds are being invested in short-term instruments yielding 12 percent per annum. If City Farm has $5 million per day in collections and $3 million per day in disbursements, how many dollars has the cash management system freed up? How much can City Farm earn in dollars per year on short-term investments made possible by the freed-up cash?
City Farm Insurance has collection centers across the country to speed up collections. The company also makes its disbursements from remote disbursement centers, so the firm's checks will take longer to clear the bank. Collection time has been reduced by three days and disbursement time increased by two days because of these policies. Excess funds are being invested in short-term instruments yielding 4 percent per annum.a. If City Farm has $4.60 million per day in collections and $3.60 million per day in disbursements, how many dollars has the cash management system freed up? (Enter your answer in dollars not in millions (e.g., $1,234,567).) Freed up funds?___________ b. How much can City Farm earn in dollars per year on short-term investments made possible by the freed-up cash? Interest on freed-up cash__________
Sheila’s Society Clothing Manufacturer has collection centres around the country to speed up cash collections. The company also makes its disbursements from remote disbursement centres, so cheques written by Sheila’s take longer to clear the bank. Collection time has been reduced by three days and disbursement time has been increased by two days because of these policies. Excess funds are being invested in short-term instruments yielding 4 percent per annum. a. If the firm has $4.60 million per day in collections and $3.60 million per day in disbursements, how many dollars has the cash management system freed up? (Enter the answer in dollars not in millions.) Freed-up funds $ b. How much can Sheila’s earn per year on short-term investments made possible by the freed-up cash? (Enter the answer in dollars not in millions.) Interest on freed-up cash $
It takes Cookie Cutter Modular Homes, Incorporated, about six days to receive and deposit checks from customers. The company’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 $136,000 and the required rate of return is an EAR of 6 percent. Assume 365 days per year. a. What is the reduction in the outstanding cash balance as a result of implementing the lockbox system? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) b. What is the daily dollar return that could be earned on these savings? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c-1. What is the maximum monthly charge the company should pay for this lockbox system if the payment is due at the end of the month? (Do not round intermediate calculations and…
XYZ Corporation has annual cash demand of 3,000,000 for a fund set aside for operating expenses. The cost to transfer funds into this account is 500 each time. If cash was not placed into this fund, it would have earned 4% annually. Its current policy is to transfer 125,000 every 15 days. What is the increase/decrease in income if the Optimum Cash Balance model was applied to this account?
Knob, Inc., is a nationwide distributor of furniture hardware. The company now uses a central billing system for credit sales of $198.00 million annually. First National, Knob’s principal bank, offers to establish a new concentration banking system for a flat fee of $150,000 per year. The bank estimates that mailing and collection time can be reduced by four days. Assume a 360-day year. By how much will Knob’s cash balances be increased under the new system? (Enter your answer in dollars not in millions.) Assume that the borrowing rate is 12%. How much extra interest income will the new system generate if the extra funds are used to reduce borrowing under Knob’s line of credit with First National? (Enter your answer in dollars not in millions.) Calculate the total annual cost of the old system if collection costs under the old system are $45,000 per year? (Enter your answer in dollars not in millions.)
The Saban Corporation is trying to decide whether to switch to a bank that will accommodate electronic funds transfers from Saban's customers. Saban's financial manager believes the new system would decrease its collection float by as much as 6 days. The new bank would require a compensating balance of $23,000, whereas its present bank has no compensating balance requirement. Saban's average daily collections are $10,200, and it can earn 8.6% on its short-term investments. Should Saban make the switch? (Assume the compensating balance at the new bank will be deposited in a non-interest-earning account.)
Atlas spends $327,800 a week to pay bills and maintains a lower cash balance limit of $50,000. The standard deviation of its disbursements is $36,900. The applicable interest rate is 3.48 percent and the fixed cost of transferring funds is $58. What is the optimal average cash balance based on the BAT model?
If a company can implement cash management systems and save 3 days by reducing remittance time and 2 days by increasing disbursement time based on P3,000,000 in average remittances and P2,500,000 in average disbursements and their return on freed up funds is 12%, what is the max they should spend on the system?
Buccaneer, Inc., has determined that it needs $10,000,000 in cash per week. If Buccaneer needs additional cash, it can sell marketable securities, incurring a fee of $100 for each transaction. If Buccaneer leaves funds in its marketable securities, it expects to earn approximately 0.2% per week on their investment. Using the economic order quant ity model, how much cash should Buccaneer raise from selling securities each week to minimize its costs of cash?
You have recently been hired to improve the performance of Multiplex Corporation, which has been experiencing a severe cash shortage. As one part of your analysis, you want to determine the firm’s cash conversion cycle. Using the following information and a 365-day year,(b) what is your Net Working Capital • Current inventory = $ 180,000.00 • Annual sales = $ 700,000.00 • Accounts receivable = $ 165,000.00 • Accounts payable = $ 85,000.00 • Total annual purchases = $ 567,000.00 • Purchases credit terms: net 30 days. • Receivables credit terms: net 50 days.