Need help Cross Collectibles currently fills mail orders from allover the U.S. and receipts come in to headquartersin Little Rock, Arkansas. The firm's averageaccounts receivable (A/R) is $2.5 million and isfinanced by a bank loan with 11 percent annualinterest. Cross is considering a regional lockboxsystem to speed up collections which it believes willreduce A/R by 20 percent. The annual cost of thesystem is $15,000. What is the estimated netannual savings to the firm from implementing thelockbox system?a. $500,000b. $30,000c. $60,000d. $55,000e. $40,000

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Answered: Cross Collectibles currently fills mail…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 13P

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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 $5.0 million, and they are financed by a bank loan at a 9.50% 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 $17,000, what pre-tax net annual savings would be realized? a. $78,000 b. $74,600 c. $95,000 d. $112,000 e. $81,400
Smith Inc. currently fills mail orders from all over the country and receipts were received in its head office. The company's average accounts receivable is P3,125,000 and is financed by a bank loan with 10% interest. Smith is considering a regional lockbox system to speed up collections. This system is projected to reduce the average accounts receivable by 15%. The annual cost of the lockbox system is P25,000. What is the estimated net annual savings in implementing the lockbox system? A. 22,985 B. 28,455 C. 25,750 D. 21,875
Knob, Inc., is a nationwide distributor of furniture hardware. The company now uses a central billing system for credit sales of $198.00 million annually. First National, Knob’s principal bank, offers to establish a new concentration banking system for a flat fee of $150,000 per year. The bank estimates that mailing and collection time can be reduced by four days. Assume a 360-day year. By how much will Knob’s cash balances be increased under the new system? (Enter your answer in dollars not in millions.) Assume that the borrowing rate is 12%. How much extra interest income will the new system generate if the extra funds are used to reduce borrowing under Knob’s line of credit with First National? (Enter your answer in dollars not in millions.) Calculate the total annual cost of the old system if collection costs under the old system are $45,000 per year? (Enter your answer in dollars not in millions.)
Cow Chips, Incorporated, a large fertilizer distributor based in California, is planning to use a lockbox system to speed up collections from its customers located on the East Coast A Philadelphia-area bank will provide this service for an annual fee of $12,000 pald at the end of the year plus 5 cents per transaction. The estimated reduction in collection and processing time is one day. Treasury bills are currently yielding 5 percent per year, and there are 365 days per year. If the average customer payment in this region is $5,900, how many customers each day, on average, are needed to make the system profitable for Cow Chips? (Do not round Intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Number of customers per day
4 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)
A bank is considering two alternatives for handling its service calls in the next decade ( treat this as one period). The projected number of service calls is 10,000,000. If the bank sets up its own service call center in the U.S., the fixed cost is estimated to be $2,700,000, and the variable cost is calculated to be 32 cents per call. If the call service is outsourced to a foreign company, the fixed cost would be $240,000, and the unit charge would be 57 cents per call. (a)What is the break-even number of service calls? (b)Would the bank set up its own service call center or outsource call handlings? (Enter 1 for Produce or enter O for Outsource) (C)What would be the dollar amount that the bank can save by choosing the better option? (Cost difference between the two options)
Global Services is considering a promotional campaign that will increase annual credit sales by $590,000. The company will require investments in accounts receivable, inventory, and plant and equipment. The turnover for each is as follows: Accounts receivable 5 times Inventory 8 times Plant and equipment 4 times All $590,000 of the sales will be collectible. However, collection costs will be 5 percent of sales, and production and selling costs will be 70 percent of sales. The cost to carry inventory will be 8 percent of inventory. Depreciation expense on plant and equipment will be 20 percent of plant and equipment. The tax rate is 35 percent.a. Compute the investments in accounts receivable, inventory, and plant and equipment based on the turnover ratios. Add the three together. b. Compute the accounts receivable collection costs and production and selling costs and then add the two figures together. c. Compute the costs of carrying inventory.…
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)
Global Services is considering a promotional campaign that will increase annual credit sales by $650,000. The company will require investments in accounts receivable, inventory, and plant and equipment. The turnover for each is as follows: Accounts receivable Inventory Plant and equipment 2 times 4 times 2 times All $650,000 of the sales will be collectible. However, collection costs will be 6 percent of sales, and production and selling costs will be 76 percent of sales. The cost to carry inventory will be 4 percent of inventory. Depreciation expense on plant and equipment will be 10 percent of plant and equipment. The tax rate is 35 percent. a. Compute the investments in accounts receivable, inventory, and plant and equipment based on the turnover ratios. Add the three together. Accounts receivable Inventory Plant and equipment Total Investment
The Milton Company currently purchases an average of $27,000 per day in raw materials on credit terms of "net 40." The company expects sales to increase substantially next year and anticipates that its raw material purchases will increase to an average of $30,000 per day. Milton feels that it may need to finance part of this sales expansion by stretching accounts payable. Round your answers to the nearest dollar. a. Assuming that Milton currently waits until the end of the credit period to pay its raw material suppliers, what is its current level of trade credit? $ b. If Milton stretches its accounts payable an extra 10 days beyond the due date next year, how much additional short-term funds (that is, trade credit) will be generated? $
Community Financial provides lockbox services. They estimate that your firm can reduce its average collection mail time by 1.6 days and the clearing and processing time by 1.2 days by implementing their system. Your firm receives 74 checks a day with an average value of $9,750 each. The current T-Bill rate is .014 percent per day. Assume a 365-day year. What is the net amount of annual income your firm can earn if it installs this service at an annual cost of $48,000? Multiple Choice $62,640.00 $58,746.20 $56,408.17 $65,675.00 $55,232.22 G
The Milton Company currently purchases an average of $23,000 per day in raw materials on credit terms of "net 25." The company expects sales to increase substantially next year and anticipates that its raw material purchases will increase to an average of $26,000 per day. Milton feels that it may need to finance part of this sales expansion by stretching accounts payable. Round your answers to the nearest dollar. a. Assuming that Milton currently waits until the end of the credit period to pay its raw material suppliers, what is its current level of trade credit? $ 575,000 b. If Milton stretches its accounts payable an extra 5 days beyond the due date next year, how much additional short- term funds (that is, trade credit) will be generated? $

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