City Farm Insurance has collection centers across the country to speed up collections. The company also makes its disbursementsfrom remote disbursement centers, so the firm's checks will take longer to clear the bank. Collection time has been reduced by twoand one-half days and disbursement time increased by one and one-half days because of these policies. Excess funds are beinginvested in short-term instruments yielding 5 percent per annum.a. If City Farm has $4.30 million per day in collections and $3.30 million per day in disbursements, how many dollars has the cashmanagement system freed up?Note: Enter your answer in dollars not in millions (e.g., $1,234,567).Freed-up fundsb. How much can City Farm earn in dollars per year on short-term investments made possible by the freed-up cash?Note: Enter your answer in dollars not in millions (e.g., $1,234,567).Interest on freed-up cash

The average collection period is the amount of time it takes for a business to receive payments owed…

Answered: City Farm Insurance has collection…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter17: The Management Of Cash And Marketable Securities

Section: Chapter Questions

Problem 2P

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It typically takes Law Corporation 8 days to receive and deposit customer remissions. Law is considering a lockbox system and anticipates that the system will reduce the float time to 5 days. Average daily cash receipts are P220,000. The rate of return is 10 percent. Requirement: What is the reduction in cash balances associated with implementing the system? What is the rate of return associated with the earlier receipt of the funds? What should be the maximum monthly charge associated with the lockbox proposal?
Sheila's Society Clothing Manufacturer has collection centres around the country to speed up cash collections. The company also makes its disbursements from remote disbursement centres, so cheques written by Sheila's take longer to clear the bank. Collection time has been reduced by three days and disbursement time has been increased by two days because of these policies. Excess funds are being invested in short-term instruments yielding 5 percent per annum. a. If the firm has $4.20 million per day in collections and $3.20 million per day in disbursements, how many dollars has the cash management system freed up? (Enter the answer in dollars not in millions.) Freed-up funds b. How much can Sheila's earn per year on short-term investments made possible by the freed-up cash? (Enter the answer in dollars not in millions.) Interest on freed-up cash $
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…
It takes Cookie Cutter Modular Homes, Incorporated, about six days to receive and deposit checks from customers. The company’s management is considering a lockbox system to reduce the firm’s collection times. It is expected that the lockbox system will reduce receipt and deposit times to three days total. Average daily collections are $136,000 and the required rate of return is an EAR of 6 percent. Assume 365 days per year. a. What is the reduction in the outstanding cash balance as a result of implementing the lockbox system? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) b. What is the daily dollar return that could be earned on these savings? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c-1. What is the maximum monthly charge the company should pay for this lockbox system if the payment is due at the end of the month? (Do not round intermediate calculations and…
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.)
The Polk Corporation is trying to decide whether to switch to a bank that will accommodate electronic funds transfers from Polk's customers. Polk's financial manager believes the new system would decrease its collection float by as much as 7 days. The new bank would require a compensating balance of $23 000, whereas its present bank has no compensating balance requirement. Saban's average daily collections are $11 000, and it can earn 8% on its short-term investments. Should Polk make the switch? (Assume the compensating balance at the new bank will be deposited in a non-interest-earning account.) As a result of using the electronic funds transfer system, the amount of collection float freed up by the loan is $ (Round to the nearest dollar.)
4. ABC Co. has received proposals from several banks to establish a lockbox system to speed up receipts. The firm receives an average of 700 checks per day averaging P1, 800 each and its cost of short term funds is 7% per year. If all proposals will produce equivalent processing results, which bank proposed charges is best 2 be adopted? A. A fee of .03% of the amount collected B. P.50 fee per check C. a compensating balance of P1, 750, 000 D. a flat fee of P125, 000 a year
YY Corporation has daily collections of 130,000 from a selected foreign customer group. The bank offered to accelerate the clearing time of these collections from 8 days to 3 days for a quarterly fee of 1,000. YY can invested freed cash into a mutual fund to earns 5% annually. How much is the net benefit/(cost) of this bank service?
If Merilee Industries installs a lockbox system it should reduce its average collection time by 2.2 days at a cost of $.75 per check. On an average day, 594 checks with an average value of $4,618 each are received. The daily interest rate on Treasury bills is .009 percent. What is the net present value of this lockbox arrangement?
The XYZ customer service branch maintains a disbursement account which is funded by the main office. The branch needs funds for daily disbursements of P40,000 and a minimum balance of P20,000. The cost to transfer funds from the main office to the branch averages P300. The return on money marketable securities is 5%. If the entity uses a 250-day year for financial analysis, how much is the optimal cash amount to be requested by the branch each time?
ABC Corporation would like to know what its optimal cash balance for its petty cash fund. The daily average disbursement is P5,000. ABC operates 365 days a year. Cost to transfer money into the account average P250 each time. If the money is not in this account, it could have been in an investment account earning 5% per year. Requiired: 1. Optimum cash balance 2. Total cost of holding and maintaining the optimal cash balance
ABC Corporation has a daily collection of 180,000 from a selected foreign customer group. The bank offered to accelerate the clearing time of these collections from 8 days to 5 days for a quarterly fee of 1,000. ABC can invested freed cash into a mutual fund to earn 5% annually. How much is the net benefit/cost of this bank service?

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