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

See similar textbooks

Related questions

Q: a. Paradise Retailers, Inc. (PRI) determined that $1,500,000 is needed for cash transactions made…

A: Total cash needed (T) = $1,500,000Fixed charges (F) = $12.95Interest rate (I) = 4.5%

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: A company wants to replace one of its old machines with the following cash flows: Monthly Operating…

A: Given: Monthly Operating Cost of old machine “P” = $9968 Projected increase “g” = 0.81% Number of…

Q: Striker Company estimates its expected cash receipts for the period to be $80,000 and its expected…

A: The objective of the question is to determine how much cash the Striker Company needs to borrow in…

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

A: Average account receivable = $5 Million Annual interest rate=9.5% Reduction in Average accounts…

Q: A company engaged high-end apparel sells for cash only. The marketing manager is contemplating of…

A: Receivable is the amount which a company is going to receive from the debtors. Higher the credit…

Q: Lockbox system Eagle Industries feels that a lockbox system can shorten its accounts receivable…

A: Lockbox system is a process of emptying mail payments regularly that were sent by the customers to…

Q: 14

A: The cash inflow for each year and cumulative cash flows is shown in below table: The above table…

Q: a. How long is cash typically tied up in inventories? (Show computations) b. What would be the…

A: a)-The Inventory conversion period In the question it takes 80 days to collect the sales receivable…

Q: Marketable securities yield 1% per month. Determine the size and number of transfers that will…

A: Size and number of transfers that will minimize the cost of maintaining the special account 7…

Q: Dome Metals has credit sales of $198,000 yearly with credit terms of net 120 days, which is also the…

A: Increase in profit = Current sales* increase in sales%= 198,000*20%*25% = 9,900Old accounts…

Q: A CARDBOARD BOX FACTORY pays its suppliers 40 days after making the purchase and receiving the…

A: The question is related to Operating cycle in Working Capital Management. Since you have posted a…

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: Knob, Inc., is a nationwide distributor of furniture hardware. The company now uses a central…

A: As per the given information: Credit sales - $198.00 million Flat fee of First National - $150,000…

Q: Your company wants to buy a new piece of machinery for $2.3 million. You will pay for 15% of the…

A: Weighted Average Cost of Capital: When a firm's weighted average cost of capital (WACC) is…

Q: CSI Lumber Company has sales of $10 million per year. All sales are on credit, calling for payment…

A: Days sales outstanding (DSO) is the number of days taken by the firm to collect payment after sales…

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: 00,000 is considering changing its ent terms from net 40 to net 30 to rage customers to pay more…

A: Working capital changes:Decrease in Receivables.......1…

Q: On average, a firm collects checks totaling $250,000 per day. It takes the firm approximately 4 days…

A: The firm can invest the amount generated due to the reduced cash cycle and can earn an extra return…

Q: What would be the net daily benefit of opening the new account? (

A: Net daily benefit refers to the total benefit earned by the company or person in a period of 24…

Q: Viron Corporation has a cash conversion cycle of 100 days and a bank credit line of $5 million at 5%…

A: Cash conversion cycle refers to the number of days which has incurred in converting the investment…

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

A: Average daily collections means on an average how much amount is collected on daily basis. This is…

Concept explainers

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.

Question

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 çollection 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

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1 General introduction

VIEW

Step 2 Solution

VIEW

Step 3 Final answer

VIEW

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Problem 1 Bird's Eye Treehouses, Inc., a Kentucky company, has determined that a majority of its customers are located in the Pennsylvania area. It therefore 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 two days. Based on the following information, should the lockbox system be adopted? Average number of payments per day Average value of payment Variable lockbox fee (per transaction) Annual interest rate on money market securities 400 $1,200 $.35 6.0% How would your answer change if there were a fixed charge of $6,000 per year in addition to the variable charge?
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?
Lockbox system Eagle Industries feels that a lockbox system can shorten its accounts receivable collection period by 5 days. Credit sales are $3,200,000 per year, billed on a continuous basis. The firm has other equally risky investments with a return of 15%. The cost of the lockbox system is $9,000 per year. (Note: Assume a 365-day year.) a. What amount of cash will be made available for other uses under the lockbox system? b. What net benefit (cost) will the firm realize if it adopts the lockbox system? Should it adopt the proposed lockbox system? a. The amount of cash that will be made available for other uses under the lockbox system is $ (Round to the nearest dollar.)
Annie's Homemade is considering buying an ice cream truck at the beginning of April for $46,500. The ice cream truck's estimated monthly net cash inflows are as follows: April May June July August September October November $ 2,000 $ 6,000 $ 8,000 The payback period is $ 12,000 $ 14,000 $ 9,000 $ 7,000 $ 1,000 Required: 1. What is the ice cream truck's payback period in months? Note: Round your answer to 1 decimal place. months
Buccaneer, Inc., has determined that it needs $10 million in cash per week. If Buccaneer needs additional cash, it can sell marketable securities, incurring a fee of $100 for each transaction. If Buccaneer leaves funds in its marketable securities, it expects to earn approximately 0.2% per week on their investment. Calculate for the cash infusion of 2 million or 3 million then solve for Transaction Cost and Holding Cost.
ALei Industries has credit sales of $146 million a year. ALei's management reviewed its credit policy and decided that it wants to maintain an average collection period of 35 days. a. What is the maximum level of accounts receivable that ALei can carry and have a 35-day average collection period? b. If ALei's current accounts receivable collection period is 55 days, how much would it have to reduce its level of accounts receivable in order to achieve its goal of 35 days?
Bird's Eye Treehouses, Incorporated, a Kentucky company, has determined that a majority of its customers are located in the Pennsylvania area. It therefore 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. Assume 365 days a year. Average number of payments per day Average value of payment Variable lockbox fee (per transaction) Annual interest rate on money market securities 880 $830 $.10 3.2% 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 that there is an annual fixed charge of $3,000 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.) Answer is complete but not entirely…
5. A. Anthony & Sons Concrete Company has been offered by its bank to manage its cash at a cost of $35,000 per year. Under the proposed cash management, the firm can reduce the cash required on hand by $180, 000, Since the bank is also doing a lot of record keeping, the firm's administrative cost would decrease by $2, 000 per month. What recommendation would you give the firm with respect to the proposed cash management assuming the firm's opportunity cost is 12 percent?
Calculate the amount of additional cash that a company could raise from suppliers if its trade credit is extended by 10 days. Assume that the company’s trade payables are $300,000 and that it buys $2,300,000 from various suppliers yearly.
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.…
Suppose that LilyMac Photography has annual sales of $230,000, cost of goods sold of $165,000, average inventories of $4,500, average accounts receivable of $25,000, and an average accounts payable balance of $7,000.Assuming that all of LilyMac’s sales are on credit, what will be the firm’s cash cycle? (Use 365 days a year. Do not round intermediate calculations. Round your final answer to 2 decimal places.)
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%)

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS