EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 17, Problem 9P
a.
Summary Introduction
To determine: The annual pre-tax benefits.
b.
Summary Introduction
To determine: The annual net pre-tax benefits.
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Ralph Taylor, a nationwide department store chain, currently processes all of its credit sales payments at its St. Louis headquarters. The firm is considering the establishment of a lockbox arrangement with a Los Angeles bank to process payments from its customers in 10 western states.
With the lockbox system, average mailing time for customers from this region would be reduced from 4 days to 1 day. Check-clearing time would also be reduced from 4 days to 1 day. Annual collections from the western region are $285 million. Establishment of this lockbox system would reduce the compensating balance requirement at the firm's St. Louis bank by $350,000 and reduce annual payment processing costs at the St. Louis office by $75,000. Funds released by the lockbox arrangement can be invested elsewhere in the firm to earn 5% before taxes. The Los Angeles bank has agreed to process Ralph Taylor's customer payments for an annual fee of $185,000.
What are the annual net pretax benefits to Ralph…
Neon Light Company of Kansas City ships lamps and lighting appliances throughout the country. Ms. Neon has determined that
through the establishment of local collection centers around the country, she can speed up the collection of payments by one and
one-half days. Furthermore, the cash management department of her bank has indicated to her that she can defer her payments on
her accounts by one-half day without affecting suppliers. The bank has a remote disbursement center in Florida.
a. If Neon Light Company has $2.30 million per day in collections and $1.06 million per day in disbursements, how many dollars will the
cash management system free up? (Enter your answer in dollars not in millions (e.g., $1,234,567).)
Freed-up funds
b. If Neon Light Company can earn 9 percent per annum on freed-up funds, how much will the income be? (Enter your answer in
dollars not in millions (e.g., $1,234,567).)
Interest on freed-up cash
c. If the total cost of the new system is $405,000, should it be…
Neon Light Company of Kansas City ships lamps and lighting appliances throughout the country. Ms. Neon has determined that through the establishment of local collection centers around the country, she can speed up the collection of payments by two and one-half days. Furthermore, the cash management department of her bank has indicated to her that she can defer her payments on her accounts by one-half day without affecting suppliers. The bank has a remote disbursement center in Florida.
Chapter 17 Solutions
EBK CONTEMPORARY FINANCIAL MANAGEMENT
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