The amount of funds released by the lockbox arrangement

Assignment Help Financial Management

Reference no: EM13890401

J-Mart, a nationwide department store chain, processes all its credit sales payments at its suburban Detroit headquarters. The firm is considering the implementation of a lockbox collection system with an Atlanta bank to process monthly payments from its southeastern region. Annual credit sales collections from the region are $60 million. The establishment of the lockbox system would reduce mailing, processing, and check-clearing time from 8 days currently to 3.5 days, reduce company processing costs by $25,000 per year, and reduce the compensating balance of its Detroit bank by $200,000. The Atlanta bank would not charge any fee for the lockbox service but would require J-Mart to maintain a $500,000 compensating balance. Funds released by the lockbox arrangement could be invested elsewhere in the firm to earn 15 percent before taxes. Determine the following:

A) The amount of funds released by the lockbox arrangement

B) The annual (pretax) earnings on the released funds

C) The annual net (pretax) benefits to J-Mart of establishing the lockbox system with the Atlanta bank

Reference no: EM13890401

Questions Cloud

What amount must you deposit each year : You want to have $72,000 in your savings account 13 years from now, and you’re prepared to make equal annual deposits into the account at the end of each year. If the account pays 7.30 percent interest, what amount must you deposit each year?

Internal rate of return : Internal rate of return. ABC firm sells extended warranties for its washing machines. When ABC sells the warranty, it receives cash upfront, but later ABC must cover any repair costs that arise. ABC is considering a warranty for a new line of TVs. A ..

Your firm purchases goods from its supplier on terms : Your firm purchases goods from its supplier on terms of 2.2/ 15, net 30. What is the effective annual cost to your firm if it chooses not to take the discount and makes its payment on day 30? What is the effective annual cost to your firm if it choos..

Compute the amount of underapplied or overapplied overhead : Compute the amount of underapplied or overapplied overhead as of January 31 and transfer it to the Cost of Goods Sold account.

The amount of funds released by the lockbox arrangement : J-Mart, a nationwide department store chain, processes all its credit sales payments at its suburban Detroit headquarters. The firm is considering the implementation of a lockbox collection system with an Atlanta bank to process monthly payments from..

What is your portfolio beta : You have a $48,000 portfolio consisting of Intel, GE, and Con Edison. You put $20,000 in Intel, $11,200 in GE, and the rest in Con Edison. Intel, GE, and Con Edison have betas of 1.3, 1, and .8, respectively. What is your portfolio beta?

Sequential steps in the marketing research process : Briefly describe the sequential steps in the Marketing Research Process. (name and number the steps and describe with one or two statements each one)

What is the risk-free rate : Consider the CAPM. The expected return on the market is 13%. The expected return on a stock with a beta of 1.5 is 18%. What is the risk-free rate?

Creating a pro forma balance sheet : The question has us creating a pro forma balance sheet, and one of the criteria is: (5) The firms ending inventory will change directly with the changes in sales in 2016. Does that mean the inventory will (A) decrease by the the amount the sales incr..

User Account

All Pages