Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
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Chapter 17, Problem 7SP
Summary Introduction
To determine: The annual savings
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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
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?
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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