Solve this problem and give correct answer 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

To calculate the estimated net annual savings for Cross Collectibles from implementing the lockbox…

Answered: Cross Collectibles currently fills mail…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter17: The Management Of Cash And Marketable Securities

Section: Chapter Questions

Problem 5P

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Cross Collectibles currently fills mail orders from all over the U.S. and receipts come in to headquarters in Little Rock, Arkansas. The firm's average accounts receivable (A/R) is $2.5 million and is financed by a bank loan with 11 percent annual interest. Cross is considering a regional lockbox system to speed up collections which it believes will reduce A/R by 20 percent. The annual cost of the system is $15,000. What is the estimated net annual savings to the firm from implementing the lockbox system? a. $500,000 b. $30,000 c. $60,000 d. $55,000 e. $40,000
Whitmer Inc. sells to customers all over the U.S., and all receipts come in to its headquarters in New York City. The firm's average accounts receivable balance is $5.0 million, and they are financed by a bank loan at a 9.50% annual interest rate. The firm is considering setting up a regional lockbox system to speed up collections, and it believes this would reduce receivables by 20%. If the annual cost of the system is $17,000, what pre-tax net annual savings would be realized? a. $78,000 b. $74,600 c. $95,000 d. $112,000 e. $81,400
Smith Inc. currently fills mail orders from all over the country and receipts were received in its head office. The company's average accounts receivable is P3,125,000 and is financed by a bank loan with 10% interest. Smith is considering a regional lockbox system to speed up collections. This system is projected to reduce the average accounts receivable by 15%. The annual cost of the lockbox system is P25,000. What is the estimated net annual savings in implementing the lockbox system? A. 22,985 B. 28,455 C. 25,750 D. 21,875
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.)
A bank is considering two alternatives for handling its service calls in the next decade ( treat this as one period). The projected number of service calls is 10,000,000. If the bank sets up its own service call center in the U.S., the fixed cost is estimated to be $2,700,000, and the variable cost is calculated to be 32 cents per call. If the call service is outsourced to a foreign company, the fixed cost would be $240,000, and the unit charge would be 57 cents per call. (a)What is the break-even number of service calls? (b)Would the bank set up its own service call center or outsource call handlings? (Enter 1 for Produce or enter O for Outsource) (C)What would be the dollar amount that the bank can save by choosing the better option? (Cost difference between the two options)
Global Services is considering a promotional campaign that will increase annual credit sales by $590,000. The company will require investments in accounts receivable, inventory, and plant and equipment. The turnover for each is as follows: Accounts receivable 5 times Inventory 8 times Plant and equipment 4 times All $590,000 of the sales will be collectible. However, collection costs will be 5 percent of sales, and production and selling costs will be 70 percent of sales. The cost to carry inventory will be 8 percent of inventory. Depreciation expense on plant and equipment will be 20 percent of plant and equipment. The tax rate is 35 percent.a. Compute the investments in accounts receivable, inventory, and plant and equipment based on the turnover ratios. Add the three together. b. Compute the accounts receivable collection costs and production and selling costs and then add the two figures together. c. Compute the costs of carrying inventory.…
Global Services is considering a promotional campaign that will increase annual credit sales by $650,000. The company will require investments in accounts receivable, inventory, and plant and equipment. The turnover for each is as follows: Accounts receivable Inventory Plant and equipment 2 times 4 times 2 times All $650,000 of the sales will be collectible. However, collection costs will be 6 percent of sales, and production and selling costs will be 76 percent of sales. The cost to carry inventory will be 4 percent of inventory. Depreciation expense on plant and equipment will be 10 percent of plant and equipment. The tax rate is 35 percent. a. Compute the investments in accounts receivable, inventory, and plant and equipment based on the turnover ratios. Add the three together. Accounts receivable Inventory Plant and equipment Total Investment
The Milton Company currently purchases an average of $27,000 per day in raw materials on credit terms of "net 40." The company expects sales to increase substantially next year and anticipates that its raw material purchases will increase to an average of $30,000 per day. Milton feels that it may need to finance part of this sales expansion by stretching accounts payable. Round your answers to the nearest dollar. a. Assuming that Milton currently waits until the end of the credit period to pay its raw material suppliers, what is its current level of trade credit? $ b. If Milton stretches its accounts payable an extra 10 days beyond the due date next year, how much additional short-term funds (that is, trade credit) will be generated? $
The Milton Company currently purchases an average of $23,000 per day in raw materials on credit terms of "net 25." The company expects sales to increase substantially next year and anticipates that its raw material purchases will increase to an average of $26,000 per day. Milton feels that it may need to finance part of this sales expansion by stretching accounts payable. Round your answers to the nearest dollar. a. Assuming that Milton currently waits until the end of the credit period to pay its raw material suppliers, what is its current level of trade credit? $ 575,000 b. If Milton stretches its accounts payable an extra 5 days beyond the due date next year, how much additional short- term funds (that is, trade credit) will be generated? $
First National Bank of Conway is considering installing two ATMs in its Southside branch. The new machines are expected to cost $37000 apiece. Installation costs will amount to about $15000 per machine. Each machine has a projected useful life of 10 years. Due to rapid growth in the Southside district, these two machines (combined) are expected to handle 50000 cash transactions per year. On average, each cash transaction is expected to save $0.30 in teller expenses. If First National has a 0.10 cost of capital, what is the NPV of this project?
Rocor is considering the implementation of a lockbox collection system for its mid-western and western sales regions. Sales in those two regions are 30 percent of Tocor's annual sales of $560 million. The lockbox system will cost $187,000 a year and reduce collection by time by 3 days. If Tocor could invets any released funds at 10.85 percent, should it use the lockbox system and what would be the savings/loss. Assume 365 days per year.
The Milton Company currently purchases an average of $25,000 per day in raw materials on credit terms of "net 35." The company expects sales to increase substantially next year and anticipates that its raw material purchases will increase to an average of $29,000 per day. Milton feels that it may need to finance part of this sales expansion by stretching accounts payable. Round your answers to the nearest dollar. Assuming that Milton currently waits until the end of the credit period to pay its raw material suppliers, what is its current level of trade credit? $ If Milton stretches its accounts payable an extra 5 days beyond the due date next year, how much additional short-term funds (that is, trade credit) will be generated? $

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