### Analysis of Regional Lockbox System for Whitmer Inc.Whitmer Inc. serves customers across the United States, with all receipts processed at its headquarters in New York City. The company's average accounts receivable balance is $2.5 million, which is financed through a bank loan at an annual interest rate of 11%. The firm is evaluating the implementation of a regional lockbox system aimed at accelerating collections, which is anticipated to reduce the receivables by 20%.### Key Details:- **Current Average Receivables**: $2.5 million- **Annual Interest Rate**: 11%- **Proposed Receivables Reduction**: 20%- **Annual Cost of Lockbox System**: $15,000### Calculation of Pre-Tax Net Annual Savings:1. **Reduction in Receivables**: \[ \text{Reduction} = $2,500,000 \times 20\% = $500,000 \]2. **Annual Interest Savings**: \[ \text{Annual Interest Savings} = $500,000 \times 11\% = $55,000 \]3. **Net Annual Savings**: \[ \text{Net Annual Savings} = \text{Interest Savings} - \text{Cost of Lockbox} = $55,000 - $15,000 = $40,000 \]By implementing the lockbox system, Whitmer Inc. would realize a pre-tax net annual savings of $40,000, accounting for the reduction in interest costs less the annual expense of the lockbox system. **Note**: This solution assumes that the operational efficiency gained from the lockbox system does not incur any additional hidden costs or savings beyond those identified.

Lockbox System - It is a technique of management of mailing float. There are certain advantage of…

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 $2.5 million, and they are financed by a bank loan at an 11% 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 $15,000, what pre-tax net annual savings would be realized? (Hint: Lockbox will reduce annual average balanc of account receivable which in turn save annual interest costs. Compare this savings with the annual lockbox cost)

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 $2.5 million, and they are financed by a bank loan at an 11% 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 $15,000, what pre-tax net annual savings would be realized? (Hint: Lockbox will reduce annual average balanc of account receivable which in turn save annual interest costs. Compare this savings with the annual lockbox cost)

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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Jamboo Corporation is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $230009 if credit is extended. Of the new accounts receivable generated, 10 percent will prove to be uncollectible. Additional collection costs will be 5 percent of sales, and production and selling costs will be 75 percent of sales. The firm needs to pay 1,500 tax on additional sales. Compute Net income after tax. ANSWER FORMAT: 1234.56 Answer:
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.)
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ABC Corporation receives checks from its customers. The total check value averages 700,000 each day. It takes an average of 5 days from deposits for these to clear the bank. If the bank offers to accelerate the 5-day clearing process to 3 days for a monthly fee of 600. If ABC can earn 4% investment income from excess cash, how much is the net annual benefits/cost of this bank offer?
The Cowboy Bottling Company will generate $16 million in credit sales next year. Collection of these credit sales will occur evenly over this period. The firm's employees work 300 days a year. Currently, the firm's processing system ties up 6 days' worth of remittance checks. A recent report from a financial consultant indicated procedures that will enable Cowboy Bottling to reduce processing float by 2 full days. If Cowboy invests the released funds to earn 6 percent, what will be the annual savings?

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