48.
|
When Chris balanced her business checkbook, she had an adjusted bank balance of $11,418. She had 2 outstanding deposits worth $879 each and 11 checks outstanding with a total value of $3,648. What is the amount of the collection float on this account?
Collection float = $879 × 2 = $1,758
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 19-01 The importance of float and how it affects the cash balances. Section: 19.2 Topic: Collection float |
49.
|
Your company has an available balance of $7,911. A deposit of $2,480 that was made this morning is not yet included in the bank's balance. There are also 4 checks outstanding with a value of $360 each. What is the net float?
Net collection float = $2,480 - (4 × $360) = $1,040
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 19-01 The importance of float and how it affects the cash balances. Section: 19.2 Topic: Net float |
50.
|
A firm has $16,718 in outstanding checks that have not cleared the bank. The firm also has $13,450 in deposits that have been recorded by the firm but not by the bank. The current available balance is $11,407. What is the status of the net float?
Net disbursement float = $16,718 - $13,450 = $3,268
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 19-01 The importance of float and how it affects the cash balances. Section: 19.2 Topic: Net float |
51.
|
Your firm generally receives 4 checks a month. The check amounts and the collection delay for each check is shown below. Given this information what is the amount of the average daily float? Assume a 30 day month.
Average daily float = [($1,500 × 2) + ($3,900 × 1) + ($6,100 × 3) + ($4,200 × 2)]/30 = $1,120
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 19-01 The importance of float and how it affects the cash balances. Section: 19.2 Topic: Average daily float |
52.
|
Hoyes Lumber generally receives 3 checks a month. The check amounts and the collection delay for each check are shown below. Given this information, what is the amount of the average daily float? Assume each month has 30 days.
Average daily float = [($6,100 × 3) + ($5,500 × 1) + ($8,900 × 2)]/30 = $1,386.67
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 19-01 The importance of float and how it affects the cash balances. Section: 19.2 Topic: Average daily float |
53.
|
The Blue Star generally receives only 3 checks a month. The check amounts and the collection delay for each check are shown below. Given this information, what is the amount of the average daily float? Assume every month has 30 days.
Average daily float = [($8,800 × 2) + ($2,300 × 3) + ($8,400 × 2]/30 = $1,376.67
|
AACSB: Analytic
Blooms: Remember Difficulty: 1 Easy Learning Objective: 19-03 The advantages and disadvantages to holding cash and some of the ways to invest idle cash. Section: 19.2 Topic: Average daily float |
54.
|
The Food Wholesaler generally receives 4 checks a month. The check amounts and the collection delay for each check are shown below. Given this information, what is the amount of the average daily float? Assume every month has 30 days.
Average daily float = [($67,200 × 3) + ($91,600 × 1) + ($54,200 × 2) + ($88,500 × 3)]/30 = $22,236.67
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 19-01 The importance of float and how it affects the cash balances. Section: 19.2 Topic: Average daily float |
55.
|
Hot Tub Builders sells to three retail outlets. Each retailer pays once a month in the amounts shown below. The collection delay associated with each payment is also given below. What is the amount of the average daily receipts if you assume each month has 30 days?
Average daily receipts = ($42,500 + $149,800 + $63,100)/30 = $8,513.33
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 19-01 The importance of float and how it affects the cash balances. Section: 19.2 Topic: Average daily receipts |
56.
|
Atlas Builders deals strictly with five customers. The average amount each customer pays per month along with the collection delay associated with each payment is shown below. Given this information, what is the amount of the average daily receipts? Assume every month has 30 days.
Average daily receipts = ($6,800 + $8,500 + $2,000 + $9,500 + $7,500)/30 = $1,143.33
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 19-01 The importance of float and how it affects the cash balances. Section: 19.2 Topic: Average daily receipts |
57.
|
National Exporters deals strictly with two customers. The average amount each customer pays per month along with the collection delay associated with each payment is shown below. Given this information, what is the amount of the average daily receipts? Assume that every month has 30 days.
Average daily receipts = ($63,200 + $72,800)/30 = $4,533.33
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 19-01 The importance of float and how it affects the cash balances. Section: 19.2 Topic: Average daily receipts |
58.
|
Cross Country Trucking provides transportation services exclusively for four customers. The average amount each customer pays per month along with the collection delay associated with each payment is shown below. Given this information, what is the weighted average delay? Assume each month has 30 days.
Total monthly collections = $64,000 + $88,200 + $96,500 + $47,900 = $296,600
Weighted average delay = [($64,000/$296,600) × 2] + [($88,200/$296,600) × 3] + [($96,500/$296,600) × 2] + [($47,900/$296,600) × 3] = 2.46 days |
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 19-01 The importance of float and how it affects the cash balances. Section: 19.2 Topic: Weighted average delay |
59.
|
High Brow Express deals strictly with two customers. The average amount each customer pays per month along with the collection delay associated with each payment is shown below. Given this information, what is the weighted average delay? Assume that every month has 30 days.
Total monthly collections = $478,000 + $575,000 = $1,053,000
Weighted average delay = [($478,000/$1,053,000) × 2] + [($575,000/$1,053,000) × 3] = 2.55 days |
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 19-01 The importance of float and how it affects the cash balances. Section: 19.2 Topic: Weighted average delay |
60.
|
The Metallurgical Specialty Co. deals strictly with four customers. The average amount each customer pays per month along with the collection delay associated with each payment is shown below. Given this information, what is the weighted average delay? Assume each month has 30 days.
Total monthly collections = $287,000 + $416,000 + $139,000 + $233,000 = $1,075,000
Weighted average delay = [($287,000/$1,075,000) × 4] + [($416,000/$1,075,000) × 1] + [($139,000/$1,075,000) × 1] + [($233,000/$1,075,000) × 3] = 2.23 days |
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 19-01 The importance of float and how it affects the cash balances. Section: 19.2 Topic: Weighted average delay |
61.
|
On an average day, Goose Down Feathers receives $2,400 in checks from customers. These checks clear the bank in an average of 2.2 days. The applicable daily interest rate is 0.04 percent. What is the present value of the float? Assume each month has 30 days.
Present value of the float = $2,400 × 2.2 = $5,280
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 19-01 The importance of float and how it affects the cash balances. Section: 19.2 Topic: Cost of float |
62.
|
On an average day, Town Center Hardware receives $2,420 in checks from customers. These checks clear the bank in an average of 2.1 days. The applicable daily interest rate is 0.025 percent. What is the maximum amount this store should pay to completely eliminate its collection float? Assume each month has 30 days.
Maximum cost = Present value of the float = $2,420 × 2.1 = $5,082.00
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 19-01 The importance of float and how it affects the cash balances. Section: 19.2 Topic: Cost of float |
63.
|
On an average day, your firm receives $11,800 in checks from customers. These checks clear the bank in an average of 2.8 days. The applicable daily interest rate is 0.015 percent. What is the highest daily fee your firm should pay to completely eliminate the collection float? Assume each month has 30 days.
Maximum daily fee = $11,800 × 2.8 × 0.00015 = $4.96
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 19-01 The importance of float and how it affects the cash balances. Section: 19.2 Topic: Maximum daily fee |
64.
|
On an average day, Wilson & Wilson receives $7,800 in checks from customers. These checks clear the bank in an average of 1.7 days. The applicable daily interest rate is 0.022 percent. What is the highest daily fee this firm should pay to completely eliminate its collection float? Assume each month has 30 days.
Maximum daily fee = $7,800 × 1.7 × 0.00022 = $2.92
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 19-01 The importance of float and how it affects the cash balances. Section: 19.2 Topic: Maximum daily fee |
65.
|
Your average customer is located 4.3 mailing days away from your firm. You have determined that, on average, it is taking your staff 1.5 days to process payments received from customers. In addition, it takes an average of 2.8 days for your funds to be available for use once you have made your bank deposit. What is your firm's collection time?
Collection time = 4.3 + 1.5 + 2.8 = 8.6 days
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 19-02 How firms manage their cash and some of the collection; concentration; and disbursement techniques used. Section: 19.3 Topic: Collection time |
66.
|
It takes your firm 4.5 days to prepare and mail out all the monthly statements to your customers. On average, the mail time between your firm and your customers is 2.6 days. Customer checks take an average of 1.8 days to clear the bank. You have determined that your total average collection time is 6.1 days. How long, on average, does it take your firm to process the payments from customers?
Processing time = 6.1 - 2.6 - 1.8 = 1.7 days
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 19-02 How firms manage their cash and some of the collection; concentration; and disbursement techniques used. Section: 19.3 Topic: Collection time |
67.
|
Currently, your firm requires 2 days to process the checks which customers mail in to pay for their credit purchases. The average mail time associated with these payments is 3.4 days and the check clearing time is 2.1 days. If your firm adopts a lockbox system, the mail time will be cut in half. In addition, if employees are reassigned, checks could be processed the same day they are received. How long will your collection time be if both the lockbox system and the job reassignments are implemented?
Collection time = (3.4 × 0.5) + 1 + 2.1 = 4.80 days
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 19-01 The importance of float and how it affects the cash balances. Section: 19.3 Topic: Collection time |
68.
|
You are considering implementing a lockbox system for your firm. The system is expected to reduce the average collection time by 1.2 days. On an average day, your firm receives 320 checks with an average value of $99 each. The daily interest rate on Treasury bills is 0.014 percent. What is the anticipated amount of the daily savings if this system is implemented?
Daily savings = 320 × $99 × 1.2 × 0.00014 = $5.32
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 19-02 How firms manage their cash and some of the collection; concentration; and disbursement techniques used. Section: 19.3 Topic: Lockbox daily savings |
69.
|
Roger's Distributors receives an average of 310 checks a day. The average amount per check is $629. The firm is considering a lockbox system which it anticipates will reduce the average collection time by 1.5 days. The daily interest rate on Treasury bills is 0.011 percent. What is the amount of the expected daily savings of the lockbox system?
Daily savings = 310 × $629 × 1.5 × 0.00011 = $32.17
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 19-02 How firms manage their cash and some of the collection; concentration; and disbursement techniques used. Section: 19.3 Topic: Lockbox daily savings |
70.
|
Hand Tools, Inc. receives an average of 611 checks a day. The average amount per check is $425. The firm is considering a lockbox system which it anticipates will reduce the average collection time by 1 day. The bank charges $0.275 a check for this service. The daily interest rate on Treasury bills is 0.013 percent. What is the average daily cost of the lockbox system?
Daily cost = 611 × $0.275 = $168.03
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 19-02 How firms manage their cash and some of the collection; concentration; and disbursement techniques used. Section: 19.3 Topic: Lockbox daily cost |
71.
|
You are considering implementing a lockbox system for your firm. The system is expected to reduce the average collection time by 1.3 days. On an average day, your firm receives 136 checks with an average value of $219 each. The daily interest rate on Treasury bills is 0.021 percent. The bank charge per check is $0.26. What is the anticipated daily cost of the lockbox system?
Daily cost = 136 × $0.26 = $35.36
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 19-02 How firms manage their cash and some of the collection; concentration; and disbursement techniques used. Section: 19.3 Topic: Lockbox daily cost |
72.
|
You are considering implementing a lockbox system for your firm. The system is expected to reduce the average collection time by 2.8 days. On an average day, your firm receives 2,419 checks with an average value of $1,287 each. The daily interest rate on Treasury bills is 0.016 percent. The bank charge per check is $0.30. What is the net present value of this lockbox arrangement?
Net present value = [2,419 × $1,287 × 2.8] - [(2,419 × $0.30)/.00016] = $4,181,483
|
AACSB: Analytic
Blooms: Analyze Difficulty: 2 Medium Learning Objective: 19-02 How firms manage their cash and some of the collection; concentration; and disbursement techniques used. Section: 19.3 Topic: Lockbox net present value |
73.
|
Rosewell International receives an average of 268 checks a day with an average amount per check of $780. The firm is considering a lockbox system which it anticipates will reduce the average collection time by 1.4 days. The bank charges $0.21 a check for this service. The daily interest rate on Treasury bills is 0.02 percent. What is the net present value of this lockbox arrangement?
Net present value = [268 × $780 × 1.4] - [(268 × $0.21)/.0002] = $11,256
|
AACSB: Analytic
Blooms: Analyze Difficulty: 2 Medium Learning Objective: 19-02 How firms manage their cash and some of the collection; concentration; and disbursement techniques used. Section: 19.3 Topic: Lockbox net present value |
74.
|
The Eliot Co. needs $185,000 a week to pay bills. The standard deviation of the weekly disbursements is $17,600. The firm has established a lower cash balance limit of $75,000. The applicable interest rate is 5.5 percent and the fixed cost of transferring funds is $47. Based on the BAT model, what is the optimal initial cash balance?
|
AACSB: Analytic
Blooms: Analyze Difficulty: 2 Medium Learning Objective: 19-03 The advantages and disadvantages to holding cash and some of the ways to invest idle cash. Section: 19.A Topic: BAT model |
75.
|
Theo's Bar & Grill needs $153,000 a week to pay bills. The standard deviation of the weekly disbursements is $9,600. The firm has established a lower cash balance limit of $40,000. The applicable interest rate is 3.5 percent and the fixed cost of transferring funds is $40. Based on the BAT model, what is the optimal average cash balance?
|
AACSB: Analytic
Blooms: Analyze Difficulty: 2 Medium Learning Objective: 19-03 The advantages and disadvantages to holding cash and some of the ways to invest idle cash. Section: 19.A Topic: BAT model |
76.
|
Parkway Express needs $318,000 a week to pay bills. The standard deviation of the weekly disbursements is $31,000. The firm has established a lower cash balance limit of $60,000. The applicable interest rate is 4.5 percent and the fixed cost of transferring funds is $65. Based on the BAT model, what is the opportunity cost of holding cash?
|
AACSB: Analytic
Blooms: Analyze Difficulty: 2 Medium Learning Objective: 19-03 The advantages and disadvantages to holding cash and some of the ways to invest idle cash. Section: 19.A Topic: BAT model |
77.
|
Penco Supply spends $325,000 a week to pay bills and maintains a lower cash balance limit of $75,000. The standard deviation of its disbursements is $18,900. The applicable interest rate is 5 percent and the fixed cost of transferring funds is $65. What is the firm's optimal initial cash balance based on the BAT model?
|
AACSB: Analytic
Blooms: Analyze Difficulty: 2 Medium Learning Objective: 19-03 The advantages and disadvantages to holding cash and some of the ways to invest idle cash. Section: 19.A Topic: BAT model |
78.
|
Your firm spends $54,000 a week to pay bills and maintains a lower cash balance limit of $45,000. The standard deviation of your disbursements is $12,100. The applicable interest rate is 4.5 percent and the fixed cost of transferring funds is $55. What is your opportunity cost of holding cash based on the BAT model?
|
AACSB: Analytic
Blooms: Analyze Difficulty: 2 Medium Learning Objective: 19-03 The advantages and disadvantages to holding cash and some of the ways to invest idle cash. Section: 19.A Topic: BAT model |
79.
|
Rosie O'Grady's spends $115,000 a week to pay bills and maintains a lower cash balance limit of $95,000. The standard deviation of the disbursements is $14,600. The applicable interest rate is 4.8 percent and the fixed cost of transferring funds is $50. What is this firm's total cost of holding cash based on the BAT model?
Trading cost = [52/($111,616.90/$115,000)] × $50 = $2,678.81 Total cost = $2,678.81 + $2,678.81 = $5,358 |
AACSB: Analytic
Blooms: Analyze Difficulty: 2 Medium Learning Objective: 19-03 The advantages and disadvantages to holding cash and some of the ways to invest idle cash. Section: 19.A Topic: BAT model |
80.
|
Your firm spends $346,000 a week to pay bills and maintains a lower cash balance limit of $150,000. The standard deviation of your disbursements is $28,700. The applicable interest rate is 5 percent and the fixed cost of transferring funds is $60. What is your optimal average cash balance based on the BAT model?
|
AACSB: Analytic
Blooms: Analyze Difficulty: 2 Medium Learning Objective: 19-03 The advantages and disadvantages to holding cash and some of the ways to invest idle cash. Section: 19.A Topic: BAT model |
81.
|
The Cow Pie Spreader Co. spends $214,000 a week to pay bills and maintains a lower cash balance limit of $150,000. The standard deviation of the disbursements is $16,000. The applicable weekly interest rate is 0.025 percent and the fixed cost of transferring funds is $49. What is the firm's cash balance target based on the Miller-Orr model?
Cash balance target = $150,000 + [0.75 × $49 × ($16,0002/.00025)]1/3 = $183,511
|
AACSB: Analytic
Blooms: Analyze Difficulty: 2 Medium Learning Objective: 19-03 The advantages and disadvantages to holding cash and some of the ways to invest idle cash. Section: 19.A Topic: Miller-Orr model |
82.
|
The Blue Moon Hotel and Spa spends $359,000 a week to pay bills and maintains a lower cash balance limit of $250,000. The standard deviation of the disbursements is $46,800. The applicable weekly interest rate is 0.045 percent and the fixed cost of transferring funds is $60. What is the hotel's optimal upper cash limit based on the Miller-Orr model?
Cash balance target = $250,000 + [0.75 × $60 × ($46,8002/.00045)]1/3 = $310,278.70
Upper cash limit = 3 × $310,278.70 - (2 × $250,000) = $430,836 |
AACSB: Analytic
Blooms: Analyze Difficulty: 2 Medium Learning Objective: 19-03 The advantages and disadvantages to holding cash and some of the ways to invest idle cash. Section: 19.A Topic: Miller-Orr model |
83.
|
Donaldson, Inc. spends $94,000 a week to pay bills and maintains a lower cash balance limit of $25,000. The standard deviation of the disbursements is $13,000. The applicable weekly interest rate is 0.045 percent and the fixed cost of transferring funds is $52. What is your optimal average cash balance based on the Miller-Orr model?
Cash balance target = $25,000 + [0.75 × $52 × ($13,0002/.00045)]1/3 = $49,466.94
Average cash balance = [(4 × $49,466.94) - $50,000]/3 = $57,623 |
AACSB: Analytic
Blooms: Analyze Difficulty: 2 Medium Learning Objective: 19-03 The advantages and disadvantages to holding cash and some of the ways to invest idle cash. Section: 19.A Topic: Miller-Orr model |
84.
|
The Burger Stop spends $52,000 a week to pay bills and maintains a lower cash balance limit of $60,000. The standard deviation of the disbursements is $7,500. The applicable weekly interest rate is 0.04 percent and the fixed cost of transferring funds is $50. What is your optimal average cash balance based on the Miller-Orr model?
Cash balance target = $60,000 + [0.75 × $50 × ($7,5002/.0004)]1/3 = $77,405.96
Average cash balance = [(4 × $77,405.96) - $60,000]/3 = $83,208 |
AACSB: Analytic
Blooms: Analyze Difficulty: 2 Medium Learning Objective: 19-03 The advantages and disadvantages to holding cash and some of the ways to invest idle cash. Section: 19.A Topic: Miller-Orr model |
85.
|
Your firm spends $48,000 a week to pay bills and maintains a lower cash balance limit of $50,000. The standard deviation of the disbursements is $8,100. The applicable weekly interest rate is 0.054 percent and the fixed cost of transferring funds is $65. What is your cash balance target based on the Miller-Orr model?
Cash balance target = $50,000 + [.75 × $65 × ($8,1002/.00054)]1/3 = $68,093
|
AACSB: Analytic
Blooms: Analyze Difficulty: 2 Medium Learning Objective: 19-03 The advantages and disadvantages to holding cash and some of the ways to invest idle cash. Section: 19.A Topic: Miller-Orr model |
86.
|
Travel Inn Express spends $109,000 a week to pay bills and maintains a lower cash balance limit of $125,000. The standard deviation of the disbursements is $14,400. The applicable weekly interest rate is 0.039 percent and the fixed cost of transferring funds is $58. What is the inn's cash balance target based on the Miller-Orr model?
Cash balance target = $125,000 + [0.75 × $58 × ($14,4002/.00039)]1/3 = $153,492
|
AACSB: Analytic
Blooms: Analyze Difficulty: 2 Medium Learning Objective: 19-03 The advantages and disadvantages to holding cash and some of the ways to invest idle cash. Section: 19.A Topic: Miller-Orr model |
87.
|
Each business day, on average, a company writes checks totaling $26,000 to pay its suppliers. The usual clearing time for the checks is 5 days. Meanwhile, the company is receiving payments from its customers each day, in the form of checks, totaling $40,000. The cash from the payments is available to the firm after 2 days. What is the amount of the firm's average net float?
Net float = 5($26,000) - 2($40,000) = $50,000
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy EOC: 19-2 Learning Objective: 19-01 The importance of float and how it affects the cash balances. Section: 19.2 Topic: Net float |
88.
|
Purple Feet Wine, Inc. receives an average of $6,000 in checks per day. The delay in clearing is typically 4 days. The current interest rate is 0.025 percent per day. Assume 30 days per month. What is the highest daily fee the company should be willing to pay to eliminate its float entirely?
Maximum daily fee = ($6,000 × 4) × 0.00025 = $6.00
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy EOC: 19-3 Learning Objective: 19-01 The importance of float and how it affects the cash balances. Section: 19.2 Topic: Cost of float |
89.
|
Your neighbor goes to the post office once a month and picks up two checks, one for $18,000 and one for $4,000. The larger check takes 4 days to clear after it is deposited; the smaller one takes 6 days. Assume 30 days per month. What is the weighted average delay?
Total monthly receipts = $18,000 + $4,000 = $22,000
Weighted average delay = [($18,000/$22,000) × 4] + [($4,000/$22,000) × 6] = 4.36 days |
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy EOC: 19-4 Learning Objective: 19-01 The importance of float and how it affects the cash balances. Section: 19.2 Topic: Weighted average delay |
90.
|
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 1 day. You typically receive 25,000 checks per day. The daily interest rate is 0.016 percent. What is the NPV of the lockbox project if the bank charges a fee of $210 per day?
NPV of service = $60(25,000) - ($210/0.00016) = $187,500
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy EOC: 19-5 Learning Objective: 19-02 How firms manage their cash and some of the collection; concentration; and disbursement techniques used. Section: 19.3 Topic: Lockbox NPV |
91.
|
A mail-order firm processes 5,000 checks per month. Of these, 55 percent are for $55 and 45 percent are for $65. The $55 checks are delayed 2 days on average; the $65 checks are delayed 5 days on average. Assume each month has 30 days. The interest rate is 6 percent per year. How much should the firm be willing to pay to reduce the weighted average float by 1.4 days?
Maximum payment = Average daily float = 1.4{[(0.55 × 5,000 × $55) + (0.45 × 5,000 × $65)]/30} = $13,883
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy EOC: 19-6 Learning Objective: 19-01 The importance of float and how it affects the cash balances. Section: 19.2 Topic: Average daily float |
92.
|
Paper Submarine Manufacturing is investigating a lockbox system to reduce its collection time. It has determined the following:
The total collection time will be reduced by 2 days if the lockbox system is adopted. What is the NPV of adopting the lockbox system?
NPV = (2 × 300 × $3,200) - [($0.75 × 300)/0.0002] = $795,000
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy EOC: 19-7 Learning Objective: 19-02 How firms manage their cash and some of the collection; concentration; and disbursement techniques used. Section: 19.3 Topic: Lockbox NPV |
93.
|
Home Roasted Turkeys disburses checks every 4 weeks that average $70,000 and take 5 days to clear. How much interest can the company earn if it delays transfer of funds from an interest-bearing account that pays 0.02 percent per day for these 5 days? Ignore the effects of compound interest. Assume 52 weeks in a year.
Interest = $70,000 (5) (52/4) (0.0002) = $910
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy EOC: 19-9 Learning Objective: 19-02 How firms manage their cash and some of the collection; concentration; and disbursement techniques used. Section: 19.3 Topic: Value of delay |
94.
|
Never Again Enterprises has an agreement with The Worth Bank whereby the bank handles $3.12 million in collections a day and requires a $1,000,000 compensating balance. Never Again is contemplating canceling the agreement and dividing its eastern region so that two other banks will handle its business. Banks A and B will each handle $1.56 million of collections a day, and each requires a compensating balance of $1,550,000. Never Again's financial management expects that collections will be accelerated by one day if the eastern region is divided. The T-bill rate is 4 percent annually. What is the amount of the annual net savings if this plan is adopted?
NPV = $3,120,000 - [2($1,550,000) - $1,000,000] = $1,020,000
Net savings = 0.04($1,020,000) = $40,800 |
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy EOC: 19-10 Learning Objective: 19-02 How firms manage their cash and some of the collection; concentration; and disbursement techniques used. Section: 19.3 Topic: NPV of float reduction |
95.
|
Mountaintop Inns, 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, Pennsylvania. The bank has estimated that use of the system will reduce collection time by one day. In addition to the variable charge shown below, there is also a fixed charge of $4,320 per year for the lockbox system. Assume a year has 365 days. What is the NPV of the lockbox system given the following information?
NPV = (1 × 750 × $1,800) - [($0.30 × 750)/(1.061/365 - 1)] - [$4,320/0.06] = -$131,301
|
AACSB: Analytic
Blooms: Analyze Difficulty: 2 Medium EOC: 19-11 Learning Objective: 19-02 How firms manage their cash and some of the collection; concentration; and disbursement techniques used. Section: 19.3 Topic: Lockbox NPV |
96.
|
Cow Chips, Inc., 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 $25,000 plus 12 cents per transaction. The estimated reduction in collection and processing time is one day. The average customer payment in this region is $8,200. Treasury bills are currently yielding 5 percent per year. Assume a year has 365 days. Approximately how many customers each day, on average, are needed to make the system profitable for Cow Chips, Inc.?
NPV = 0 = ($8,200 × 1 × N) - ($0.12 × N)/0.000134 - $25,000/0.05
N = 68 customers per day |
AACSB: Analytic
Blooms: Analyze Difficulty: 2 Medium EOC: 19-12 Learning Objective: 19-02 How firms manage their cash and some of the collection; concentration; and disbursement techniques used. Section: 19.3 Topic: Transactions required |
No comments:
Post a Comment