a. How much is the average daily collection float? b. If cash can be readily invested in instruments earning 5%, how much is the daily cost of the float? c. If STATE FARM can reduce the processing time of its checks by a day, and deposit it immediately, how much can it save in a year?
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- A firm has daily cash receipts through checks. On average 150 checks are received per day while each check has an average value of P2,500. It takes an average of 3 days for the bank to clear the checks. A bank has offered to decrease the clearing period to one day for a monthly fee of P500. The bank gives an interest rate of 3% per year. How much would ABC receive as total annual interest on the freed cash? How much is the annual cost of the service? What is the annual net benefit or (loss) from having this service?(D) Receivables and Cash: Collection Float A firm has daily cash receipts through checks. On average 150 checks are received per day while each check has an average value of P2,500. It takes an average of 3 days for the bank to clear the checks. A bank has offered to decrease the clearing period to one day for a monthly fee of P500. The bank gives an interest rate of 3% per year. Required: 16. How much is the daily cash receipts? 1. How much is the decrease of the clearing float in days? 2. How much would the average cash in bank balance increase by if the ABC took the bank's offer? 3. How much would ABC receive as total annual interest on the freed cash? 4. How much is the annual cost of the service? 21. What is the annual net benefit or loss) from having this service?4. ABC Co. has received proposals from several banks to establish a lockbox system to speed up receipts. The firm receives an average of 700 checks per day averaging P1, 800 each and its cost of short term funds is 7% per year. If all proposals will produce equivalent processing results, which bank proposed charges is best 2 be adopted? A. A fee of .03% of the amount collected B. P.50 fee per check C. a compensating balance of P1, 750, 000 D. a flat fee of P125, 000 a year
- 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.…Anne Teak, the financial manager of a furniture manufacturer, is considering operating a lock-box system. She forecasts that 800 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 0.015% per day. a. If the lock box makes the cash available 2 days earlier, calculate the net daily advantage of the system. (Do not round intermediate calculations.) b. Is it worthwhile to adopt the system? (Yes/No) c. What minimum reduction in the time to collect and process each check is needed to justify use of the lock-box system? (Do not round intermediate calculations. Round your answer to 2 decimal places.)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…
- 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 daysBird'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 850 $ 800 $.10 a. NPV b. NPV 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.)Anne Teak, the financial manager of a furniture manufacturer, is considering operating a lock-box system. She forecasts that 700 payments a day will be made to lock boxes with an average payment size of $3,500. The bank’s charge for operating the lock boxes is $0.50 a check. The interest rate is 0.011% per day. a. If the lock box makes the cash available 2 days earlier, calculate the net daily advantage of the system. (Do not round intermediate calculations.) Anne Teak, the financial manager of a furniture manufacturer, is considering operating a lock-box system. She forecasts that 700 payments a day will be made to lock boxes with an average payment size of $3,500. The bank’s charge for operating the lock boxes is $0.50 a check. The interest rate is 0.011% per day. a. If the lock box makes the cash available 2 days earlier, calculate the net daily advantage of the system. (Do not round intermediate calculations.)
- Anne Teak, the financial manager of a furniture manufacturer, is considering operating a lock-box system. She forecasts that 600 payments a day will be made to lock boxes with an average payment size of $2,000. The bank’s charge for operating the lock boxes is $0.30 a check. The interest rate is 0.011% per day. a. If the lock box makes the cash available 2 days earlier, calculate the net daily advantage of the system. (Do not round intermediate calculations.) b. Is it worthwhile to adopt the system? multiple choice Yes No c. What minimum reduction in the time to collect and process each check is needed to justify use of the lock-box system? (Do not round intermediate calculations. Round your answer to 2 decimal places.)Anne Teak, the financial manager of a furniture manufacturer, is considering operating a lock-box system. She forecasts that 300 payments a day will be made to lock boxes with an average payment size of $2,000. The bank’s charge for operating the lock boxes is $0.40 a check. The interest rate is 0.011% per day. a. If the lock box makes the cash available 2 days earlier, calculate the net daily advantage of the system. (Do not round intermediate calculations.) Net Daily Advantage _________________ b. Is it worthwhile to adopt the system? Yes No c. What minimum reduction in the time to collect and process each check is needed to justify use of the lock-box system? (Do not round intermediate calculations. Round your answer to 2 decimal places.)You must show your work in order to receive credit for participation: >>> On average, a firm collects checks totaling $250,000 per day. It takes the firm approximately 4 days from the day the checks were mailed until they result in usable cash for the firm. Assume that (1) a lockbox system could be employed which would reduce the cash conversion procedure to 2 1/2 days and (2) the firm could invest any additional cash generated at 6% after taxes. The lockbox system would be a good buy if it costs $25,000 annually. a. True b. False