PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Question
Chapter 30, Problem 25PS
a)
Summary Introduction
To determine: Whether lock box is worthwhile or not.
b)
Summary Introduction
To determine: Average check balance size.
c)
Summary Introduction
To determine: Reasons that are needed to know interest rates in part (a) and part (b)
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Example
One of the companies adopts a central system for the payment of
payment bills through the general administration, and this requires
an average of 4 days for the checks to reach the customers as well
as
1,5
The day of registration of checks before they are deposited in the
bank, and the average company receipts are 500 thousand dinars
per day. The company is studying the possibility of using mailboxes
through renting, and this will reduce the time for mailing checks by
an amount
2,5
day, and the time required to prepare checks for deposit is reduced
by one day. Required:
1. What is the amount of cash that can be released in this process?
2. Determine the alternative cost of the released funds if the return
on financial instruments
Short term 5%?
3. Is it feasible to use this system when considering the alternative
cost?
For the liberated money, if the costs of the local mailbox system are
75,000 dinars annually?
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.)
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 days
Chapter 30 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 30 - Prob. 1PSCh. 30 - Components of working capital True or false? a....Ch. 30 - Inventory True or false? a. Just-in-time inventory...Ch. 30 - Inventory What are the trade-offs involved in the...Ch. 30 - Prob. 5PSCh. 30 - Prob. 6PSCh. 30 - Prob. 7PSCh. 30 - Prob. 8PSCh. 30 - Prob. 9PSCh. 30 - Credit terms Phoenix Lambert currently sells its...
Ch. 30 - Prob. 11PSCh. 30 - Prob. 12PSCh. 30 - Prob. 13PSCh. 30 - Prob. 14PSCh. 30 - Prob. 15PSCh. 30 - Credit policy How should your willingness to grant...Ch. 30 - Prob. 17PSCh. 30 - Prob. 18PSCh. 30 - Prob. 19PSCh. 30 - Prob. 20PSCh. 30 - Cash management Complete the passage that follows...Ch. 30 - Prob. 22PSCh. 30 - Prob. 23PSCh. 30 - Prob. 24PSCh. 30 - Prob. 25PSCh. 30 - Prob. 26PSCh. 30 - Prob. 27PSCh. 30 - Prob. 28PSCh. 30 - Prob. 29PSCh. 30 - Prob. 30PSCh. 30 - Prob. 31PSCh. 30 - Prob. 32PSCh. 30 - Prob. 34PSCh. 30 - Prob. 35PSCh. 30 - Prob. 36PSCh. 30 - After-tax yields Suppose you are a wealthy...Ch. 30 - Prob. 38PSCh. 30 - Prob. 39PS
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