a.
To calculate: The amount (in dollars) that the cash management system will free up in the given situation.
Introduction:
Cash management:
Management of the cash flows of a firm is known as cash management. It includes the management of cash expenses and cash receipts. In other words, it refers to the control over the payment of expenses or liabilities and collection of revenue.
b.
To calculate: The possible earnings of Neon Light Company by freed-up cash in terms of dollars per year on a short-term investment.
Introduction:
Cash management:
Management of the cash flows of a firm is known as cash management. It includes the management of cash expenses and cash receipts. In other words, it refers to the control over the payment of expenses or liabilities and collection of revenue.
c.
To identify: Whether the new system should be implemented or not, provided that its total cost is $400,000.
Introduction:
Cash management:
Management of the cash flows of a firm is known as cash management. It includes the management of cash expenses and cash receipts. In other words, it refers to the control over the payment of expenses or liabilities and collection of revenue.
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Chapter 7 Solutions
Loose Leaf for Foundations of Financial Management Format: Loose-leaf
- Aurora Electrical Company of Yellowknife ships wind turbines throughout the country. Mr. Beam, the financial manager, has determined that through the establishment of local collection centres around the country, he can speed up the collection of payments by two days. Furthermore, the cash management department of the company's bank has indicated to him that he can defer payments on his accounts by one day without offending suppliers. The bank has a remote disbursement centre in New Brunswick. a. If Aurora Electrical Company has $2.45 million per day in collections and $1.09 million per day in disbursements, how many dollars will the cash management system free up? (Enter the answer in dollars not in millions.) Freed-up funds $ b. If Aurora Electrical Company can earn 7% percent per annum on freed-up funds, how much income can be generated? (Enter the answer in dollars not in millions.) Interest on freed-up cash c. If the total cost of the system is $420,000 should it be implemented? ○…arrow_forwardOsborne Shipbuilding Company, located in Baton Rouge, receives large remittances from its customers in New York and California. If the firm deposits these checks in its local bank, two business days are required for the checks toclear and the funds to become usable by the firm. However, if Osborne sends an employee to New York or Californiaand presents the check for payment at the bank upon which it is drawn, the funds are available immediately to thefirm. The firm can earn 8% per annum on short-term investments, and the cost of sending an employee to New Yorkor California to present the check for payment is $500. What is the net benefit to the firm of employing this specialhandling technique for a $5 million check received on Tuesday? (Assume 365 days per year.)arrow_forwardOsborne Shipbuilding Company, located in Baton Rouge, receives large remittances from its customers in New York and California. If the firm deposits these checks in its local bank, two business days are required for the checks to clear and the funds to become usable by the firm. However, if Osborne sends an employee to New York or California and presents the check for payment at the bank upon which it is drawn, the funds are available immediately to the firm. The firm can earn 8% per annum on short-term investments, and the cost of sending an employee to New York or California to present the check for payment is $500. What is the net benefit to the firm of employing this special handling technique for a $5 million check received on Tuesday? (Assume 365 days per year.)arrow_forward
- 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…arrow_forwardCamila Martinez has several credit cards, on which she is carrying a total current balance of $6,500. She is considering transferring this balance to a new card issued by a local bank. The bank advertises that, for a 4 percent fee, she can transfer her balance to a card that charges a 0 percent interest rate on transferred balances for the first 6 months. Calculate the fee that Camila would pay to transfer the balance. $ Describe the benefits and drawbacks of balance transfer cards.arrow_forwardCurrently James Corporation is using a decentralized collection system whereby customers mail their checks to one of the firm’s eight regional locations. Its annual sales are $150 million. Checks are deposited each business day in a local bank and the amount of the deposit is sent to the firm’s concentration bank in Dallas. The average time between deposit in the local bank and the availability of those funds, in Dallas, to Riley is 6 days. James has determined that the use of wire transfers would reduce the float by four days, but the transfer will cost $15.00. If transfers will be made on each of the 250 days that banks are open, should Riley switch to the wire transfer system? Assume that James can earn 6% on the funds released through this more efficient transfer.arrow_forward
- Using Time Value of Money Calculations and formulas While she was travelling, Zainab took advantage of the convenience of cash withdrawals on her credit card since her Canadian debit card wasn’t accepted in the country she was in. According to her travel budget she withdrew $175 every day for food, activities and shopping for 21 days. When she got home, on the 21st day, she checked her credit card bill on-line and it showed that she had been charged interest already even though her payment wasn’t past due. It turns out that interest is compounded daily on cash withdrawals, from the day the cash is withdrawn If the interest rate on cash withdrawals is 28%, what was her total bill when she got home? What would be the total interest paid?arrow_forwardJoão, owner of a small clothing store, found that his company's cash needed funds in the form of money so that his employees' salary commitments could be settled. So the alternative he had at the moment was the discount of duplicates at a bank branch. The amount required for the payment of employees is $35,000.00, the amount held in duplicates is $42,000.00 with a maturity of 60 days. The bank is charging a discount rate of 60% per year. Will John be able to pay the employees? What is the annual interest rate charged by the bank?arrow_forwardAnne Teak, the financial manager of a furniture manufacturer, is considering operating a lockbox system. She forecasts that 220 payments a day will be made to lockboxes with an average payment size of $3,300. The bank’s charge for operating the lockboxes is $0.58 a check. Assume an interest rate of 8% and a 365-day year. What reduction in the time to collect and process each check is needed to justify use of the lockbox system? (Do not round intermediate calculations. Round your answer to 2 decimal places.)arrow_forward
- Maria pays her bills immediately when she receives them. Her monthly bills average about PHP9,500, and her monthly cash outlays for food and transportation cost total about PHP4,500. An analysis of Maria’s bill payments indicates that on average she pays her bills 10 days early. Bank Time Deposits are currently yielding about 4.2% annual interest. Maria is interested in learning how she might better manage her cash balances.arrow_forwardYou are managing a company which imports electrical fans from China and sells them in Turkey. You pay cash for the fans when they arrive Turkey. You collect the money of your sales by cash as soon as you sell them. You loan money from the bank for financing this business. Cost of a Fan (Including Transportation and Customs): $19,00 Arrival Time of Fans to Turkey: 15th of February Sales Time of Fans: 15th of May Banks interest rate for loaning (monthly): 2,4% How much you should sell each of the fans for if you want to get 5% profit? (Assume the your only costs are the money you pay the supplier and the interest you pay to the bank)arrow_forwardWhile she was travelling, Zainab took advantage of the convenience of cash withdrawals on her credit card since her Canadian debit card wasn’t accepted in the country she was in. According to her travel budget she withdrew $125 every day for food, activities and shopping for 21 days. When she got home, on the 21st day, she checked her credit card bill on-line and it showed that she had been charged interest already even though her payment wasn’t past due. It turns out that interest is compounded daily on cash withdrawals, from the day the cash is withdrawn. If the interest rate on cash withdrawals is 28%, what was her total bill when she got home? What would be the total interest paid?arrow_forward
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTCornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning