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8. The Essex Company found that an average of 10 days elapses between when customer payments are
received and the deposited funds clear the customer's bank and become usable by the firm. Essex's
annual sales are $240 million. (Assume 365 days per year when converting from annual data to daily
data or vice versa.)
a. What is the increase in Essex's average cash balance assuming that it can reduce the time
required to process customer payments by 3 days through more efficient payment processing
methods?
b. Suppose that Essex is able to reduce the time required to process customer payments by 4 days
through more efficient payment processing methods. Given that these additional funds can be
used to reduce the firm's outstanding bank loans (10% interest rate), what is the annual pretax
savings in interest expense?
9. MLX has annual sales of $320 million per year and has calculated that the collection float is 12 days. If
MLX is currently paying 9.35 percent on its line of credit, what amount of interest expense could be
saved if the collection float is reduced by 3 days? Assume 365 days per year.
10. Pronet has annual sales of $724 million from its 600 retail stores. Pronet can reduce its mail float by 2
days through the use of wire transfers. The annual cost of the wire transfers is expected to be $105,610.
If Pronet's cost of short-term funds is 9.75 percent, should the change to wire transfers be made? Assume
365 days per year.
11.Amazon's CFO is considering the fees charged by two banks at trying to determine which is best for her
firm. First American charges a flat $0.11 per payment and First Western requires a minimum
compensating balance of $500,000 plus $0.05 per payment.
a. If Amazon's cost of funds is 8.50%, and the expected number of payments per year is 900,000,
which bank should be chosen?
b. What is the number of payments per year where the costs of the two banks will be equal?