What is the logical explanation for the differences

Reference no: EM131488931

Question: (Cash management) As CFO of Portobello Scuba Diving Inc. you are asked to look into the possibility of adopting a lockbox system to expedite cash receipts from clients. Portobello receives check remittances totaling $24 million in a year. The firm records and processes 10,000 checks in the same period. The National Bank of Brazil has informed you that it could provide the service of expediting checks and associated documents through the lockbox system for a unit cost of $0.25 per check. After conducting an analysis, you project that the cash freed up by the adoption of the system can be invested in a portfolio of near-cash assets that will yield an annual before-tax return of 8 percent. The company usually uses a 365-day year in its financial calculations.

a. What reduction in check collection time is necessary for Portobello to be neither better nor worse off for having adopted the lockbox system?

b. How would your solution to part (a) be affected if Portobello could invest the freed-up balances at an expected annual return of only 4 percent?

c. What is the logical explanation for the differences in your answers to part (a) and part (b).

Reference no: EM131488931

Questions Cloud

Explain information about thinkers unique contributions : Explain Information about each of the thinker's unique contributions to society. The problems or issues that their ideas sought to solve.

What is affirmative action as a social policy : What is Affirmative Action as a social policy? What were the goals of Affirmative Action? Has it been successful?

What is opportunity cost to penn steelworks of funds tied up : (Lockbox system) Penn Steelworks is a distributor of cold-rolled steel products to the automobile industry. All of its sales are on a credit basis, net 30 days.

The most significant new technology requirements : Identify and analyze what you believe to be the most significant new technology requirements for the health care industry.

What is the logical explanation for the differences : (Cash management) As CFO of Portobello Scuba Diving Inc. you are asked to look into the possibility of adopting a lockbox system to expedite cash receipts.

Creating a month-by-month simulation : You are creating a month-by-month simulation of a grain-growing operation - you will create a month-by-month simulation in which each agent

Analyze the use of an enterprise software systems : Analyze the use of an Enterprise Software Systems (ESS) in a health care organization with regard to its effects on operational outcomes.

Analyze the development of t-two-d in the us : Write a six to seven page paper in which you: Analyze the development of T2D in the U.S., and compare its development to developing countries in general.

What are the assumptions made by the eoq model : What factors determine the size of the investment a firm has in its accounts receivable? Which of these factors are under the control of the financial manager?

User Account

All Pages