Item 17 A firm has daily cash receipts of P300,000 and is interested in acquiring a lockbox service in order to reduce collection time. Bank 1's lockbox service costs P3,000 per month and will reduce collection time by 3 days. Bank 2's lockbox service costs P5,000 per month and will reduce collection time by 4 days. Bank 3's lockbox service costs P500 per month and will reduce collection time by 1 day. Bank 4's lockbox service costs P1,000 per month and will reduce collection time by 2 days. If money market rates are expected to average 6% during the year, and the firm wishes to maximize income, which bank should the firm choose? Select the correct response: O Bank 3. O consistency O Bank 2. O Bank 4. O Bank 1.

Item 17 A firm has daily cash receipts of P300,000 and is interested in acquiring a lockbox service in order to reduce collection time. Bank 1's lockbox service costs P3,000 per month and will reduce collection time by 3 days. Bank 2's lockbox service costs P5,000 per month and will reduce collection time by 4 days. Bank 3's lockbox service costs P500 per month and will reduce collection time by 1 day. Bank 4's lockbox service costs P1,000 per month and will reduce collection time by 2 days. If money market rates are expected to average 6% during the year, and the firm wishes to maximize income, which bank should the firm choose? Select the correct response: O Bank 3. O consistency O Bank 2. O Bank 4. O Bank 1.

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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It typically takes Law Corporation 8 days to receive and deposit customer remissions. Law is considering a lockbox system and anticipates that the system will reduce the float time to 5 days. Average daily cash receipts are P220,000. The rate of return is 10 percent. Requirement: What is the reduction in cash balances associated with implementing the system? What is the rate of return associated with the earlier receipt of the funds? What should be the maximum monthly charge associated with the lockbox proposal?
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)
Memphis Metro just made a $75,000 purchase from a supplier, subject to the extension of suitable trade credit terms. Because of Memphis Metro’s strong balance sheet and stellar credit rating, the firm’s most recently issued line of credit is priced at 3.65 percent. Calculate the present value of this cash outflow assuming trade credit terms of 30 days; 45 days 60 days Please use Excel to explain, and show the Excel formula.
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.
Bird's Eye Treehouses Inc. has determined that a majority of its customers are located in the Winnipeg area. It therefore is considering using a lockbox system offered by a bank in Manitoba. The bank has estimated that use of the system will reduc collection time by 1.5 days. Average number of payments per day 760 Average value of payment $ 770 Variable lockbox fee (per transaction) $ 0.10 Annual interest rate on money market securities 4.0% e-1. What is the NPV of the new lockbox system? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit "$" sign in your response.) NPV $170558.7 a-2. Should the lockbox project be accepted? 13 Yes No b-1. If there were a fixed charge of $7,000 per year in addition to the variable charge, what is the NPV of the new lockbox system? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit "$" sign in your response.) NPV $ b-2.…
5. Your marketing staff encourages you to increase your NOW account rate from 0.10% to 0.25% in order to obtain an increase from $1 billion to $1.15 billion in deposits. The branch managers express concern that the service costs on the new deposits will be $140 per account with an average balance of $1200 per account and service charge revenue will be only $2 per month per account. They argue that CDs at 6% are a cheaper source of funds. If the reserve requirement on interest checking is 11% and on CDs is 2%, which source of deposits is cheaper? (Fed's Interest on reserves is 0.50%)
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.)
Data on Nathan Enterprises has determined that it needs Php 7.8 million in cash per week. If Data on Nathan Enterprises needs additional cash, it can sell marketable securities, incuring a fee of Php 500 for each transaction. If Data on Nathan Enterprises leaves funds in its marketable securities, it expects to earn approximately 0.6% per week on their investment. Using the economic order quantity model, how much cash should Data on Nathan Enterprises raise from selling securities each week to minimize its costs of cash? 5.
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
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