Cross Collectibles currently fills mail orders from allover the U.S. and receipts come in to headquartersin Little Rock, Arkansas. The firm's averageaccounts receivable (A/R) is $2.5 million and isfinanced by a bank loan with 11 percent annualinterest. Cross is considering a regional lockboxsystem to speed up collections which it believes willreduce A/R by 20 percent. The annual cost of thesystem is $15,000. What is the estimated netannual savings to the firm from implementing thelockbox system?a. $500,000b. $30,000c. $60,000d. $55,000e. $40,000

1) First, let's identify the key information: - Current average accounts receivable (A/R) = $2.5…

Answered: Cross Collectibles currently fills mail…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 13P

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Think back to the International Collections case in Assignment 5. Assume that the 60-day payment terms that you gave your buyer are typical, and that you will be required to carry up to $2,500,000.00 per month in accounts receivable for export sales. To be able to produce inventory for additional sales while while you carry 60 days of accounts receivable, you are going to need to find an outside source of additional export working capital. Discuss in detail two different options for financing export working capital to keep production going while you wait for payment from the last 60 days of sales.
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Northwest Iron and Steel is considering getting involved in electronic commerce. A modest e-commerce package is available for $30,000. The company wants to recover the cost in 2 years. Find the equivalent amount of new revenue that must be realized every 6 months at an interest rate of 3% per quarter using a factor formula, and a single-cell spreadsheet function that includes an EFFECT function. Round your answer to the nearest whole dollar.
Wemham-Miffin is considering launching a new line of septagonal-shaped paper. You have the following information: • Revenues due to the sale of the new product are expected to be $95 million annually. Of this, 77% will be by cash with the remainder sold on credit. Credit sales are expected to start being repaid after 2 years. • Total paper production costs will increase from the current level of $20 million annually to $51 million annually after the product launch. • Hyper-aggressive sales agent Dwight Schrute will be reassigned from other projects to sell the new product line. Customers of those other products will be relieved and sales will increase by $18 million annually. • The project will make use of an existing paper mill, built last year at a cost of $43 million. The mill is being depreciated using prime cost over a useful life of twenty-seven years. • However, due to this decision, machinery in the mill will need to be retrofit at a cost of $27 million at t=0. The retrofit…
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Beasley Enterprises has an agreement with Downtown Bank whereby the bank handles $1.02 million in collections a day and requires a $750,000 compensating balance. Beasley is contemplating cancelling the agreement and dividing its eastern region so that two other banks would handle its business. Banks A and B would each handle $.51 million of collections per day and each requires a compensating balance of $400,000. Collections should be accelerated by one day if the eastern region is divided. The T-bill rate is 2.97 percent annually. What is the amount of the annual net savings if this plan is adopted?

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