Eagle Industries feels that a lockbox system can shorten its accounts receivable collection period by 2...
Eagle Industries feels that a lockbox system can shorten its accounts receivable collection period by 2 days. Credit sales are $3,500,000
per year, billed on a continuous basis. The firm has other equally risky investments with a return of 12%. The cost of the lockbox system is $10,000 per year.
(Note: Assume a 365-day year.)
a. What amount of cash will be made available for other uses under the lockbox system?
b. What net benefit (cost) will the firm realize if it adopts the lockbox system? Should it adopt the proposed lockbox system?
Homework Answers
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Eagle Industries feels that a lockbox system can shorten its
accounts receivable collection period by 2...
A company is considering a lockbox system that will reduce the collection time by 2 days...
A company is considering a lockbox system that will reduce the collection time by 2 days on average. The company can earn an APR of 2.98% compounded daily on any cash balance. The average number of daily payments submitted to the lockbox is 2,131 with an average cheque size of $53. If the processing fee per cheque is $0.01, what is the NPV of adopting this lockbox? (Assume 365 days in one year.) -$35,126 -$36,004 -$36,882 -$37,760 -$38,638
7. Box Lock has annual sales of $4 million and is considering implementing a lockbox system,...
7. Box Lock has annual sales of $4 million and is considering implementing a lockbox system, which would reduce customer collection float by four days. Box Lock has a cost of capital of 13 percent. The annual after-tax cost of the lockbox system is $2000. Assume a 365-day year, should Box Lock implement the system? What would be the benefit, in dollar amount, if it did? 8. Geo-M is considering adding a cash discount to its credit terms. If Geo-M...
Note: To receive the full credit, you must show all your work (formula or inputs for a financial ...
solve part 1 and 2 of question no. 2 and show the
calculations
Note: To receive the full credit, you must show all your work (formula or inputs for a financial will not award full credit for a correct answer if you do not show your for an incorrect answer if I cannot follow your work b) What is the cost of the lockbox system in todary's saive (5 paint) work and I cannot award partial credit . (10 paint)...
Shortening the credit period A firm is contemplating shortening its credit period from 45 to 35...
Shortening the credit period A firm is contemplating shortening its credit period from 45 to 35 days and believes that, as a result of this change, its average collection period will decline from 52 to 41 days. Bad-debt expenses are expected to decrease from 1.4% to 1.1% of sales. The firm is currently selling 11,600 units but believes that as a result of the proposed change, sales will decline to 9,700 units. The sale price per unit is $54, and...
Forrester Fashions has annual credit sales of 250,000 units with an average collection period of 70...
Forrester Fashions has annual credit sales of 250,000 units with an average collection period of 70 days. The company has a per-unit variable cost of $20 and a per-unit sale price of $30.00. Bad debts currently are 5% of sales. The firm estimates that a proposed relaxation of credit standards would not affect its 70-day average collection period but would increase bad debts to 7.50% of sales. which would increase to 300,000 units per year. Forrester requires a 12% return...
Shortening the credit period A firm is contemplating shortening its credit period from 30 to 20...
Shortening the credit period A firm is contemplating shortening its credit period from 30 to 20 days and believes that, as a result of this change, its average collection period will decline from 34 to 27 days. Bad-debt expenses are expected to decrease from 1.5 % to 0.9 % of sales. The firm is currently selling 11,700 units but believes that as a result of the proposed change, sales will decline to 9,600 units. The sale price per unit is...
Question Help Accounts receivable changes without bad debts Tara's Textiles currently has credit sales of $363...
Question Help Accounts receivable changes without bad debts Tara's Textiles currently has credit sales of $363 million per year and an average collection period of 59 days Assume that the price of Tara's products is 560 per unit and that the variable costs are $55 per unit. The firm is considering an accounts receivable change that will result in a 20.3% increase in sales and a 19 2% increase in the average collection period No change in bad debts is...
A firm is contemplating shortening its credit period from 40 to 30 days and believes that,...
A firm is contemplating shortening its credit period from 40 to 30 days and believes that, as result of this change, its average collection period will decline from 45 to 36 days. Bad-debt expenses are expected to decrease from 1.5% to 1% of sales. The firm is currently selling 12,000 units but believes that as result of the proposed change, sales will decline to 10,000 units. The sale price per unit is $56, and the variable cost per unit is...
Shortening the credit period A firm is contemplating shortening its credit period from 40 to 30...
Shortening the credit period A firm is contemplating shortening its credit period from 40 to 30 days and believes that, as a result of this change, its average collection period will decline from 45 to 36 days. Bad-debt expenses are expected to decrease from 1.5% to 1.0% of sales. The firm is currently selling 12,000 units but believes that as a result of the proposed change, sales will decline to 10,000 units. The sale price per unit is $56, and...
Shortening the credit period A firm is contemplating shortening its credit period from 30 to 20...
Shortening the credit period A firm is contemplating shortening its credit period from 30 to 20 days and believes that, as a result of this change, its average collection period will decline from 34 to 25 days. Bad-debt expenses are expected to decrease from 1.7% to 1.1% of sales. The firm is currently selling 12,400 units but believes that as a result of the proposed change, sales will decline to 10,300 units. The sale price per unit is S54, and...
A company is considering a lockbox system that will reduce the collection time by 2 days on average. The company can earn an APR of 2.98% compounded daily on any cash balance. The average number of daily payments submitted to the lockbox is 2,131 with an average cheque size of $53. If the processing fee per cheque is $0.01, what is the NPV of adopting this lockbox? (Assume 365 days in one year.) -$35,126 -$36,004 -$36,882 -$37,760 -$38,638
7. Box Lock has annual sales of $4 million and is considering implementing a lockbox system, which would reduce customer collection float by four days. Box Lock has a cost of capital of 13 percent. The annual after-tax cost of the lockbox system is $2000. Assume a 365-day year, should Box Lock implement the system? What would be the benefit, in dollar amount, if it did? 8. Geo-M is considering adding a cash discount to its credit terms. If Geo-M...
solve part 1 and 2 of question no. 2 and show the
calculations
Note: To receive the full credit, you must show all your work (formula or inputs for a financial will not award full credit for a correct answer if you do not show your for an incorrect answer if I cannot follow your work b) What is the cost of the lockbox system in todary's saive (5 paint) work and I cannot award partial credit . (10 paint)...
Shortening the credit period A firm is contemplating shortening its credit period from 45 to 35 days and believes that, as a result of this change, its average collection period will decline from 52 to 41 days. Bad-debt expenses are expected to decrease from 1.4% to 1.1% of sales. The firm is currently selling 11,600 units but believes that as a result of the proposed change, sales will decline to 9,700 units. The sale price per unit is $54, and...
Forrester Fashions has annual credit sales of 250,000 units with an average collection period of 70 days. The company has a per-unit variable cost of $20 and a per-unit sale price of $30.00. Bad debts currently are 5% of sales. The firm estimates that a proposed relaxation of credit standards would not affect its 70-day average collection period but would increase bad debts to 7.50% of sales. which would increase to 300,000 units per year. Forrester requires a 12% return...
Shortening the credit period A firm is contemplating shortening its credit period from 30 to 20 days and believes that, as a result of this change, its average collection period will decline from 34 to 27 days. Bad-debt expenses are expected to decrease from 1.5 % to 0.9 % of sales. The firm is currently selling 11,700 units but believes that as a result of the proposed change, sales will decline to 9,600 units. The sale price per unit is...
Question Help Accounts receivable changes without bad debts Tara's Textiles currently has credit sales of $363 million per year and an average collection period of 59 days Assume that the price of Tara's products is 560 per unit and that the variable costs are $55 per unit. The firm is considering an accounts receivable change that will result in a 20.3% increase in sales and a 19 2% increase in the average collection period No change in bad debts is...
Shortening the credit period A firm is contemplating shortening its credit period from 40 to 30 days and believes that, as a result of this change, its average collection period will decline from 45 to 36 days. Bad-debt expenses are expected to decrease from 1.5% to 1.0% of sales. The firm is currently selling 12,000 units but believes that as a result of the proposed change, sales will decline to 10,000 units. The sale price per unit is $56, and...
Shortening the credit period A firm is contemplating shortening its credit period from 30 to 20 days and believes that, as a result of this change, its average collection period will decline from 34 to 25 days. Bad-debt expenses are expected to decrease from 1.7% to 1.1% of sales. The firm is currently selling 12,400 units but believes that as a result of the proposed change, sales will decline to 10,300 units. The sale price per unit is S54, and...
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