Reference no: EM13927045
Great Lakes Oil Company currently processes all its credit card payments at its domestic headquarters in Chicago. The firm is considering establishing a lockbox arrangement with a Los Angeles bank to process its payments from 10 western states. Under the arrangement, the average mailing time for customer payments from the western region would be reduced from 3 days to 1.5 days, whereas check processing and clearing time would be reduced from 6 days to 2.5 days. Annual collections from the western region are $180 million. The total number of payments received annually is 4.8 million (an average of 400,000 credit card customers x 12 payments per year). The Los Angeles bank will process the payments for an annual fee of $75,000 plus $0.05 per payment. No compensating balance will be required. Assume that the funds released by the lockbox arrangement can be invested elsewhere in the firm to yield 10 percent before taxes. The establishment of a lockbox system for the western region will reduce payment-processing costs at the Chicago office by $50,000 per year. Using this information, determine the following:
a. The amount of funds released by the lockbox arrangement
b. The annual (pretax) earnings on the released funds
*Color blocks behind the numbers denote problems that have check answers provided at the end of the book.
c. The annual fee Great Lakes Oil must pay to the Los Angeles bank for processing the payments
d. The annual net (pretax) benefits Great Lakes Oil will receive by establishing this lockbox arrangement with the Los Angeles bank
Great Lakes Oil has also received a proposal from a Salt Lake City bank to set up a lock-box system for the firm. Average mailing time for checks in the western region would be reduced to 2 days under the proposal from the Salt Lake City bank, and check processing and clearing time would average 2.5 days. The Salt Lake City bank would not charge any fees for processing the payments, but it would require Great Lakes Oil to maintain a $1.5 million average compensating balance with the bank- funds that normally would be invested elsewhere in the firm (yielding 10 percent) and not kept in a non-interest-bearing checking account.
e. Determine the annual net (pretax) benefits to Great Lakes Oil of establishing a lock-box system with the Salt Lake City bank.
f. Which of the two lockbox systems (if any) should the firm select?
|
Problem regarding the capital budgeting decision
: Instructions: Prepare your solution to this problem in your choice of formatting, but in Excel. You may use a timeline format or a table, as illustrated in the text. Be thorough in your response, showing calculations and explaining your entries..
|
|
Cognitive behavioral therapy
: Cognitive Behavioral Therapy can be effective in helping older adults in life because "Cognitive-behavioral therapy (CBT) is a popular and empirically supported treatment for a number of common mental health problems, including mild to moderate m..
|
|
Lease versus buy decision
: Use of the time value of money concept applied to the lease versus buy decision. How does TVM affect the options involved
|
|
Temporary pass for ten uses of the facility
: MRC sells a temporary pass for ten uses of the facility for a cost of $80
|
|
Determine the annual net benefits to great lakes oil
: Determine the annual net (pretax) benefits to Great Lakes Oil of establishing a lock-box system with the Salt Lake City bank. Which of the two lockbox systems (if any) should the firm select?
|
|
A bar code reader is to be used by which type of system
: One of the major crimes identified by the Computer Fraud and Abuse Act of 1986 is intent to illegally obtain information or tangible property through the use of computers.
|
|
Design issues you experienced in creating your survey
: Research and annotated bibliography using the University Library, reference four to six peer reviewed articles that you could use as sources for your week four presentation. Briefly explain how these articles will be useful as references for your ..
|
|
Business research process from your experience
: Write a 300-word summary of the business research process by describing the business research process from your experience in the workplace or in an article you find through the University Library.
|
|
What the different theories of organizational leadership are
: Choose 3 different approaches to leadership and write a 1-2 page paper that covers the following: Write a 1 paragraph introduction to briefly explain what the different theories of organizational leadership are
|