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A firm has arranged for a lockbox system to reduce collection time of accounts receivable. Currently the firm has an average collection period of 43 days, an average age of inventory of 50 days, and an average payment period of 10 days. The lockbox system will reduce the average collection period by 3 days by reducing processing, mail, and clearing float. The firm has total annual outlays of $15,000,000 and currently pays 9 percent for its financing. (Assume a 360-day year.)
(a) Calculate the cash conversion cycle before and after the lockbox system.
(b) Calculate the savings in financing costs from the lockbox system.
Cash conversion cycle: American Products is concerned about managing cash efficiently. On the average, inventories have an age of 90 days, and accounts recievable are collected in 60 days. Calculate the firms’s operating cycle. Calculate the firm’s c..
The wheat harvesting season in the American Midwest is short, and most farmers deliver their truckloads of wheat to a giant central storage bin within a two-week span. Because of this, wheat-filled trucks waiting to unload and return to the fields ha..
Sealord Fisheries issues zero coupon bonds on the market at a price of $168.81 per bond. Each bond has a face value of $1,000 payable at maturity in 20 years. The bonds are callable in 6 years at a call price of $500. Using semi annual compounding, w..
You own a $36,800 portfolio that is invested in Stocks A and B. The portfolio beta is equal to the market beta. Stock A has an expected return of 22.6 percent and has a beta of 1.48. Stock B has a beta of .72. What is the value of your investment in ..
Will Eatem, a portfolio manager for the Conservative Retirement Equity Fund (CREF), is considering investing in the common stock of Big Caesar's Pizza (stock symbol PIES).
A stock is expected to pay a dividend of $0.75 the end of the year (that is, D1 = $0.75), and it should continue to grow at a constant rate of 5% a year. If its required return is 12%, what is the stock's expected price 1 year from today?
A SELLER would be responsible for providing all of these items EXCEPT
A Treasury bond that matures in 14 years has a yield of 4.33%. A 14-year corporate bond has a yield of 7.39%. Assume that the liquidity premium on the corporate bond is 0.33%. What is the default risk premium on the corporate bond?
Assume the rate on the issuance of $100m of 100-year bonds is 7.5%; the annual debt service payment would be $7.505m. How high would the interest rate have to be on 30-year bonds for the annual debt service payment to be the same for both financings?
After graduating from IU, you are hired by a company that offers a 401(k) retirement plan. You would like to save enough in this plan so that when you retire in 35 years you have an account balance of $1 million. You plan to make monthly contribution..
Decline, Inc. is trying to determine its cost of debt. The firm has a debt issue outstanding with 15 years to maturity that is quoted at 102.7 percent of face value. The issue makes semiannual payments and has an embedded cost of 9 percent annually. ..
Which of the following are reasons Google chose to use an online auction rather than an investment bank to issue its IPO.
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