Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
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Question
Chapter 17, Problem 1SP
a)
Summary Introduction
To determine: The reduction in check collection time required for company P not either better or worse for adopted lockbox system.
b)
Summary Introduction
To determine: The change in part a) when the company invest at 4% annual return.
c)
Summary Introduction
To discuss: The difference among part a) and part b).
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One objective of managing a firm's cash is to process its cash receipts as quickly as possible. Banks provide many services to process incoming payments quickly and efficiently. Consider the case of Sandberg Industries: Sandberg Industries owns an office building that it fents to Graham Company. Sandberg Industries and Graham have an agreement in which Graham's bank transfers the monthly rent automatically to Sandberg Industries' account. Which cash management technique is Sandberg using?
Concentration banking
A preauthorized check
A lockbox arrangement
Osborne Shipbuilding Company, located in Baton Rouge, receives large remittances from its customers in New York and California. If the firm deposits these checks in its local bank, two business days are required for the checks toclear and the funds to become usable by the firm. However, if Osborne sends an employee to New York or Californiaand presents the check for payment at the bank upon which it is drawn, the funds are available immediately to thefirm. The firm can earn 8% per annum on short-term investments, and the cost of sending an employee to New Yorkor California to present the check for payment is $500. What is the net benefit to the firm of employing this specialhandling technique for a $5 million check received on Tuesday? (Assume 365 days per year.)
The financial manager of JAC Cosmetics is considering opening a lockbox in Pittsburgh. Checks cleared through the lockbox will
amount to $26,000 per day. The lockbox will make cash available to the company three days earlier than is currently the case.
Suppose that the bank offers to run the lockbox for a $39,600 compensating balance, answer the following:
a-1. Calculate the additional available cash generated by the lock-box system.
Additional available cash
a-2. Is the lockbox worthwhile?
Yes
O No
b. Suppose that the bank offers to run the lockbox for a fee of $0.26 per check cleared instead of a compensating balance. Assume an
interest rate of 6% per year. What must the average check size be for the fee alternative to be less costly? Use a 365-day year. (Round
your answer to the nearest whole number.)
Average check size
Chapter 17 Solutions
Foundations Of Finance
Ch. 17 - Prob. 1RQCh. 17 - Prob. 2RQCh. 17 - Prob. 3RQCh. 17 - What are the two major objectives of the firms...Ch. 17 - Prob. 5RQCh. 17 - Prob. 6RQCh. 17 - Prob. 7RQCh. 17 - Prob. 8RQCh. 17 - Prob. 9RQCh. 17 - Prob. 10RQ
Ch. 17 - Prob. 11RQCh. 17 - Prob. 1SPCh. 17 - Prob. 2SPCh. 17 - Prob. 3SPCh. 17 - (Interest rate risk) Two years ago your corporate...Ch. 17 - Prob. 6SPCh. 17 - Prob. 7SPCh. 17 - Prob. 8SPCh. 17 - Prob. 9SPCh. 17 - Prob. 10SPCh. 17 - Prob. 11SPCh. 17 - Prob. 1MCCh. 17 - Prob. 2MCCh. 17 - Prob. 3MCCh. 17 - Prob. 4MC
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