Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Question
Chapter 30, Problem 22PS
a.
Summary Introduction
To determine: The total daily cost.
b.
Summary Introduction
To determine: The daily cash that is required.
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Your firm has an average receipt size of $60. A bank has approached you concerning a lockbox service that will decrease your total collection time by 2 days. You typically receive 8,500 checks per day. The daily interest rate is 0.02 percent.
If the bank charges a fee of $190 per day, what is the NPV of the lockbox project?
What would the net annual savings be if the service were adopted?
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
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.)
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…
Chapter 30 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 30 - Inventory What are the trade-offs involved in the...Ch. 30 - Prob. 2PSCh. 30 - Prob. 3PSCh. 30 - Prob. 4PSCh. 30 - Prob. 5PSCh. 30 - Prob. 6PSCh. 30 - Prob. 7PSCh. 30 - Credit policy How should your willingness to grant...Ch. 30 - Cash management Complete the passage that follows...Ch. 30 - Prob. 10PS
Ch. 30 - Prob. 11PSCh. 30 - Prob. 12PSCh. 30 - Prob. 13PSCh. 30 - Prob. 14PSCh. 30 - Credit terms Phoenix Lambert currently sells its...Ch. 30 - Prob. 16PSCh. 30 - Prob. 17PSCh. 30 - Prob. 18PSCh. 30 - Prob. 19PSCh. 30 - Prob. 20PSCh. 30 - Prob. 21PSCh. 30 - Prob. 22PSCh. 30 - Prob. 23PSCh. 30 - Prob. 24PSCh. 30 - Prob. 25PSCh. 30 - Money-market yields In Section 30-4 we described a...Ch. 30 - Money-market yields Look again at the previous...Ch. 30 - Prob. 29PSCh. 30 - Prob. 30PSCh. 30 - Prob. 31PSCh. 30 - Prob. 33PS
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Similar questions
- Solve this problem and give correct answerarrow_forwardNeed a,b,c partsarrow_forwardBird's Eye Treehouses, Incorporated, a Kentucky company, has determined that a majority of its customers are located in the Pennsylvania area. Therefore, it 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. Average number of payments per day Average value of payment Variable lockbox fee (per transaction) Effective annual rate on money market securities 825 $745 $.15 a. NPV b. NPV 5.5% The total collection time will be reduced by three days if the lockbox system is adopted. 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, there is an annual fixed charge of $5,000 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…arrow_forward
- Problem 1 Bird's Eye Treehouses, Inc., 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 two days. Based on the following information, should the lockbox system be adopted? Average number of payments per day Average value of payment Variable lockbox fee (per transaction) Annual interest rate on money market securities 400 $1,200 $.35 6.0% How would your answer change if there were a fixed charge of $6,000 per year in addition to the variable charge?arrow_forwardcan you please help me to this account questionsarrow_forwardBird'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.…arrow_forward
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