Bird's Eye Treehouses, Incorporated, a Kentucky company, has determined that amajority of its customers are located in the Pennsylvania area. Therefore, it isconsidering using a lockbox system offered by a bank located in Pittsburgh. The bankhas estimated that use of the system will reduce collection time by 1.5 days.Average number of payments per dayAverage value of paymentVariable lockbox fee (per transaction)Effective annual rate on money marketsecurities825$745$.15a. NPVb. NPV5.5%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 calculationsand 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 $5,000to be paid at the end of each year. What is the NPV now? (A negative answer shouldbe indicated by a minus sign. Do not round intermediate calculations and roundyour answer to 2 decimal places, e.g., 32.16.)

The NPV is one of the most commonly used methods of capital budgeting which determines the…

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 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 to 2 decimal places, e.g., 32.16.) 825 $745 $.15 a. NPV b. NPV 5.5%

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 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 to 2 decimal places, e.g., 32.16.) 825 $745 $.15 a. NPV b. NPV 5.5%

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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4. ABC Co. has received proposals from several banks to establish a lockbox system to speed up receipts. The firm receives an average of 700 checks per day averaging P1, 800 each and its cost of short term funds is 7% per year. If all proposals will produce equivalent processing results, which bank proposed charges is best 2 be adopted? A. A fee of .03% of the amount collected B. P.50 fee per check C. a compensating balance of P1, 750, 000 D. a flat fee of P125, 000 a year
DEF Corporation will be needing P1,000,000 additional cash inflow. It is looking to finance this through either Bank One or Bank Zero for a period of 6 months. Bank One offers a 10% loan but requires a P20,000 bank charge. On the other hand, Bank Zero is willing to offer an 8% loan but requires P100,000 compensating balance. Which bank should DEF approach? In the space below, provide the preferred bank's simple annual cost of loan. (format: 6.67 for 6.6666%)
Rock Solid Bank and Trust (RSB&T) offers only checking accounts. Customers can write checks and use a network of automated teller machines. RSB&T earns revenue by investing the money deposited; currently, it averages 7.20 percent annually on its investments of those deposits. To compete with larger banks, RSB&T pays depositors 0.50 percent on all deposits. A recent study classified the bank’s annual operating costs into four activities. Activity Cost Driver Cost Driver Volume Using ATM Number of uses $ 4,500,000 6,000,000 uses Visiting branch Number of visits 2,700,000 450,000 visits Processing transaction Number of transactions 19,800,000 240,000,000 transactions Managing functions Total deposits 18,000,000 $ 1,125,000,000 in deposits Total overhead $ 45,000,000 Data on two representative customers follow. Customer A Customer B ATM uses 100 200 Branch visits 5 20 Number of transactions 40 1,500…
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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 5 percent per annum. a. If the firm has $4.20 million per day in collections and $3.20 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 $
If Merilee Industries installs a lockbox system it should reduce its average collection time by 2.2 days at a cost of $.75 per check. On an average day, 594 checks with an average value of $4,618 each are received. The daily interest rate on Treasury bills is .009 percent. What is the net present value of this lockbox arrangement?
The Polk Corporation is trying to decide whether to switch to a bank that will accommodate electronic funds transfers from Polk's customers. Polk's financial manager believes the new system would decrease its collection float by as much as 7 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 $11 000, and it can earn 8% on its short-term investments. Should Polk make the switch? (Assume the compensating balance at the new bank will be deposited in a non-interest-earning account.) As a result of using the electronic funds transfer system, the amount of collection float freed up by the loan is $ (Round to the nearest dollar.)
Do it correctly.
The Branson Corporation is considering a change in its cash-only policy. The new terms would be net one period. The required return is 1.5 percent per period. Price per unit Cost per unit Unit sales per month Current Policy $59 $33 2,450 NPV New Policy $61 $33 2,575 Calculate the NPV of the decision to change credit policies. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
A department store has it’s own credit card facilities, for which it charges interest at a rateof 4% each month. Calculate the annual percentage rate (APR). Explain why this is not thesame as charging an annual interest rate of 48% and what is APR.b) A proposed investment costs $1500 today. The expected revenue flow is $ 3000 at theend of year 1, and $10,000 at the end of year 2. Find the internal rate of return, correct totwo decimal places. The market interest rate is 15%. Would you recommend thisinvestment? Explain the reason for your recommendation.
Proposal #1 would extend trade credit to some customers that previously have been denied credit because they were considered poor risks. Sales are projected to increase by $200,000 per year if credit is extended to these new customers. Of the new accounts receivable generated, 7% are projected to be uncollectible. Additional collection costs are projected to be 3% of incremental sales (whether they actually end up collected or not), and production and selling costs are projected to be 80% of sales. Your firm expects to pay a total of 40% of its income after expenses in taxes. 1.Compute the incremental income after taxes that would result from these projections: 2.Compute the incremental Return on Sales if these new credit customers are accepted: If the receivable turnover ratio is expected to be 4 to 1 and no other asset buildup is needed to serve the new customers… 3.Compute the additional investment in Accounts Receivable 4.Compute the incremental Return on New Investment…

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