A firm has daily cash receipts through checks. On average 150 checks are received per day while each check has an average value of P2,500. It takes an average of 3 days for the bank to clear the checks. A bank has offered to decrease the clearing period to one day for a monthly fee of P500. The bank gives an interest rate of 3% per year. Required: 16. How much is the daily cash receipts? 17. How much is the decrease of the clearing float in days? 18. How much would the average cash in bank balance increase by if the ABC took the bank's offer?

Q: Bird's Eye Treehouses, Inc., a Kentucky company, has determined that a majority of its customers are…

A: Given, Average no of payments per day = 830Average value of payment = $780Variable lockbox feeAnnual…

Q: You plan to make a total of 7 deposits of $11,000 each year with the first payment being made one…

A: Future Value of Annuity = Future Value = P x (1+i)n

Q: The procedure banks use to compute continuously compounded interest is similar to the process we…

A: Compound interest simply means the interest on interest. It is the extra interest received from the…

Q: What reduction in average collection time would be needed to justify the lock-box system? (Use a…

A: Average collection period is number of days it takes for company to collect its receivable from…

Q: Sherman’s Sherbet currently takes about 6 days to collect and deposit checks from customers. A…

A: Collection average = $15,000 Days of collection = 6 Reduced time = 3 Interest rate = 0.02%

Q: A bank has made a $10 million loan with no prepayment penalties at a rate of  T-Bill (3-month) +…

A: Risk refers to an amount of uncertainty that can arise from the inherent losses from the decision…

Q: ABC Corporation has a daily collection of 180,000 from a selected foreign customer group. The bank…

A: The difference between cash inflows and the initial investment is defined as NPV. NPV is used to…

Q: XXX, Inc. finances tis seasonal working capital need with short-term bank loans. Management plans to…

A: Calculating the interest payment on the working capital loan. We have,Loan Amount = $ 65,000Interest…

Q: person borrows $2,850 on a bank credit card at a nominal rate of 18% per year, which is actually…

A: a.  Annual Percentage Yield      APY =[ (1+r)^n - 1]       APY = [(1+0.015)^12-1]       APY…

Q: Zimmer Inc. typically receives 850 checks everyday and the average size of check is $700. The…

A: Number of checks received every day$850Average size of checks$700Cost per check$0.20Collection time…

Q: Community Financial provides lockbox services. They estimate that your firm can reduce its average…

A:

Q: In 2015, The Swiss National Bank used a negative interest rate of -.75% on savings deposits. A…

A: Savings deposit account is a financial service widely used by depositors to save their income. It is…

Q: You currently have $5,300. First United Bank will pay you an annual interest rate of 8.8, while…

A: As per the given information: Future value - $13,000 Present value - $5,300 Rate of interest - 8.8…

Q: Hamilton wants to accumulate ₺ 24.000 at the end of 4 years. It starts quarterly payments in a bank…

A: Amount at the end of 4 years = 24000 Total Terms(n) = 4*4 = 16 quarters Anbuak rate =6% Quarterly…

Q: evaluation of its cash outlay required indicates that it needs 200,000 for the year. Regardless, of…

A: Economic size of cash required can be found out from the ordering cost and holding cost.

Q: No More Pencils, Incorporated, disburses checks every 2 weeks that average $55,000 and take 8 days…

A: Interest=Amount of the checks×No. of days it will delay in payment×Number of weeks that checks will…

Q: Whitmer Inc. sells to customers all over the U.S., and all receipts come in to its headquarters in…

A: Lockbox System - It is a technique of management of mailing float. There are certain advantage of…

Q: Your firm has an average receipt size of $65. A bank has approached you concerning a lockbox service…

A: Savings= Average Receipt*Number of Checks Per Day*Time Saved= 65*8700*2= 1131000

Q: Reduction in mailing time = 1.5 day Reduction in clearing time = 1.5 day Reduction in firm…

A: Cost associated with lockbox=Number of payments * Fees / Daily interest rate

Q: Anne Teak, the financial manager of a furniture manufacturer, is considering operating a lock-box…

A: A lockbox system is used when a company has high collection float  and the funds are locked up. The…

Q: STATE FARM Company supplies components to auto repair shops. These shops send their checks via…

A: Given, Receiving time=2 daysProcessing time=2 daysClearance time=24 hours i.e. 1 day Total no. of…

Q: The firm's bank charges $18 per wire and $0.50 per EDT. The EDT takes one day longer to clear. The…

A: Since  The minimum transfer balance= TBAL TBAL=Incremental costDS×(K-ECR(1-RRR))365 Where: DS= Days…

Q: Bulldogs Inc. deals with various clients throughout the city and is attempting to collect its…

A: Total receipts=Daily receipts×Average amount=300×P5,000=P1,500,000

Q: First National Bank requires a minimum balance of $1000 on its interest-earning checking accounts.…

A: Opportunity Cost refers to the potential benefit foregone when choosing one alternative over…

Q: The annual interest rate on a credit card is 17.99% if a payment of $400 00 is made each month, how…

A: Compound = monthly = 12Interest Rate = rate = 17.99 / 12 = 1.49916666667%Monthly Payment = pmt =…

Q: Hamilton wants to accumulate ₺ 24.000 at the end of 4 years. It starts quarterly payments in a bank…

A: Amount at the end of 4 years = 24000 Years = 4 Terms(n) = 4 *4 = 16 quarterly deposits Rate (r) = 6%…

Q: Hamilton wants to accumulate $170.000 at the end of 4 years. It starts quarterly payments in a bank…

A: in this you have to find out future value FACTOR and find quarterly payment.

Q: A banking system in a small country consist of just 5 banks. Each bank has decided to maintain a…

A: Cash ratio (CR) means percentage of total deposits which is hold by the banks to maintained the…

Q: You owe $1,853.42 on a credit card with a limit of $3,000.00 at a rate of 15.5% APR. You pay…

A: Given : Owe $1,853.42 on a credit card with a limit of $3,000.00 at a rate of 15.5% APR. Pay…

Q: Theta Corporation receives checks from its customers. The total check value averages P700,000 each…

A: Benefit or cost to be calculated on yearly basis, which means we have now received early and we can…

Q: Your neighbor goes to the post office once a month and picks up two checks, one for $ 17,000 and one…

A: > now calculate the total float as follows below:..> Total float = 8000

Q: Your neighbor goes to the post office once a month and picks up two checks, one for $25,000 and one…

A: Average daily float is the amount of daily transaction that will occur on the daily basis on an…

Q: 4. ABC Co. has received proposals from several banks to establish a lockbox system to speed up…

A: Lockbox banking is a service provided by the banks to direct the customers for receipt of payment.

Q: Suppose that you owe $2,000 on a credit card that charges 18% APR and you pay either the minimum 10%…

A: The time to pay off the debt, the installment, beginning, and ending balances can be seen from the…

Q: General Products writes checks that average $33,000 daily. These checks take an average of 6 days to…

A: Data given: Average payments received daily = $35,000 Float time = 3 days Float time is the time…

Q: Murkywater Company is considering a lockbox system. Its collection delay is currently 12 days.…

A: Cost of the proposal by multiplying the daily payment by the average size and days.

Q: Your firm has an average receipt size of $135. A bank has approached you concerning a lockbox…

A: In this scenario, our objective is to assess whether the lockbox project should be approved,…

Conversion Cycle

Conversion cycle is also known as cash cycle or net operating cycle. Conversion cycle refers to how much time a company takes to turn its investments which is done from stock or any other financial resources into cash flows from sales.