5. Your marketing staff encourages you to increase your NOW account rate from 0.10% to0.25% in order to obtain an increase from $1 billion to $1.15 billion in deposits. The branchmanagers express concern that the service costs on the new deposits will be $140 per accountwith an average balance of $1200 per account and service charge revenue will be only $2 permonth per account. They argue that CDs at 6% are a cheaper source of funds. If the reserverequirement on interest checking is 11% and on CDs is 2%, which source of deposits ischeaper? (Fed's Interest on reserves is 0.50%)

NOW (Negotiable Order of Withdrawal) accounts are a type of interest-bearing checking account that…

Answered: 5. Your marketing staff encourages you…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Similar questions

NEKO 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 NEKO at a cost of P180,000 per year. NEKO 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)
7. Consider the tape diagrams below, then answer the question that follows: 5,250 1,750 5,250 1,750 = 3,500 Which of the following problems could best be represented by the model above? You placed $4,200 in an investment account. After five years, the total amount in the account appreciated by 25%. At this point, you decided to withdraw onethird of the money in the account to move to a new investment. How much money was left in the account? b. You placed $5,250 in an investment account. After five years, the total amount in the account depreciated by 20%. It then depreciated by one-third. How much money was left in a. the account? A furniture dealer buys a sofa from his distributor for $4,200. However, he marks this price up by 20% when he sells it to you. You eventually sell the sofa for a third of what you paid for it. How much did you sell the sofa for? d. A furniture dealer sold you a sofa for 20% off of $5,250. If you eventually sell the sofa for one-third less than what you paid…
Accusoft Systems is offering small business owners a software package that keeps track of many accounting functions from bank transactions to sales invoices. The site license will cost $42,000 to install and will require a fee of $2000 every 3 months. If your company can save $13,500 every quarter and have the security of managing its books in-house, how long will it take for you to recover the investment at an interest rate of 10% per quarter? The time taken to recover the investment is determined to be |quarters.
Anne Teak, the financial manager of a furniture manufacturer, is considering operating a lockbox system. She forecasts that 220 payments a day will be made to lockboxes with an average payment size of $3,300. The bank’s charge for operating the lockboxes is $0.58 a check. Assume an interest rate of 8% and a 365-day year. What reduction in the time to collect and process each check is needed to justify use of the lockbox system? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Apollo Data Systems is considering a promotional campaign that will increase annual credit sales by $528,000. The company has a 60% cost of goods sold and will require investments in accounts receivable, inventory, and plant and equipment. The turnover for each is as follows: Accounts receivable Inventory Plant and equipment 5x 8x 2x All $528,000 of the sales will be collectible. However, collection costs will be 4 percent of sales, and production and selling costs will be 78 percent of sales. The cost to carry inventory will be 10 percent of inventory. Amortization expense on plant and equipment will be 5 percent of plant and equipment. The tax rate is 30 percent. Inventory is calculated using cost of goods sold and not sales. a. Compute the investments in accounts receivable, inventory, and plant and equipment based on the turnover ratios. What is the total value of the investment made? Accounts receivable Inventory Plant and equipment Total Investment $ $ $ b. Compute the accounts…
Riggs Corp. management is planning to spend $650,000 on a new marketing campaign. They believe that this action will result in additional cash flows of $276,000 over the next three years. If the discount rate is 17.5 percent, what is the NPV on this project?(Enter negative amounts using negative sign e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to 2 decimal places, e.g. 15.25.) The NPV is $ Crescent Industries management is planning to replace some existing machinery in its plant. The cost of the new equipment and the resulting cash flows are shown in the accompanying table. If the firm uses an 18 percent discount rate for project. Year Cash Flow 0 -$3,485,400 1 $871,710 2 $896,700 3 $1,104,400 4 $1,340,360 5 $1,450,600 What is the NPV of this project?(Enter negative amounts using negative sign e.g. -45.25. Do not round discount factors. Round intermediate calculations to 4 decimal places,…
H5. Pipe Manufacturing Company (PMC) is debating whether to extend Credit to a particular customer. PMC’s products, primarily used in the manufactured assembly of Motor Vehicles, currently sell for sh. 1,850 per unit. The variable cost is sh. 1,200 per unit. The order under consideration is 12 units today; payment is promised in 30 days. Required:- (i) If there is a 20% chance of default, should PMC fill the order? The required return is 2% per month. This is a One-Time Sale, and the customer will not buy if credit is not extended. (ii) In general terms, how do you think your answer in Part (a) will be affected if the customer will purchase the Merchandise for cash if the credit is refused? The Cash Price is sh. 1,750 per unit. Show proper step by step calculation
Anne Teak, the financial manager of a furniture manufacturer, is considering operating a lock-box system. She forecasts that 400 payments a day will be made to lock boxes with an average payment size of $3,000. The bank's charge for operating the lock boxes is $0.50 a check. The interest rate is 0.012% per day. a. If the lock box makes the cash available 2 days earlier, calculate the net daily advantage of the system. Note: Do not round intermediate calculations. b. Is it worthwhile to adopt the system? c. What minimum reduction in the time to collect and process each check is needed to justify use of the lock-box system? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. a. Net daily advantage b. Is it worthwhile to adopt the system? c. Minimum reduction in time $ Yes (56) 1.39 days
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.)
Ingraham Inc. currently has $500,000 in accounts receivable, and its days sales outstanding (DSO) is 44 days. It wants to reduce its DSO to 20 days by pressuring more of its customers to pay their bills on time. If this policy is adopted, the company's average sales will fall by 10%. What will be the level of accounts receivable following the change? Assume a 365-day year. Do not round intermediate calculations. Round your answer to the nearest cent
Your firm has an average receipt size of $90. A bank has approached you concerning a lockbox service that will decrease your total collection time by 2 days. You typically receive 9,100 checks per day. The daily interest rate is 0.019 percent. If the bank charges a fee of $200 per day, what is the NPV of the lockbox project? NPV What would the net annual savings be if the service were adopted? Net annual savings
Sunny Manufacturing is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $220,000 if credit is extended to these new customers. Of the new accounts receivable generated, 10 percent will prove to be uncollectible. Additional collection costs will be 5 percent of sales, and production and selling costs will be 70 percent of sales. a. Compute the incremental income before taxes. $ Incremental income before taxes b. What will the firm's incremental return on sales be if these new credit customers are accepted? (Round the final answer to 2 decimal place.) Incremental return on sales % c. If the receivable turnover ratio is 4 to 1, and no other asset buildup is needed to serve the new customers, what will Sunny Manufacturing's incremental return on new average investment be? (Do round intermediate calculations. Round the final answer to the nearest whole percentage.) Incremental return on new average investment %

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