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82. What is the benefit for a firm with daily sales of $30,000 to be able to speed up
collections by 3 days, assuming an annual opportunity cost of funds of 8%?
83. Which one of these is
not
a characteristic of a concentration system of collections?
84. The Canine Kennel uses 600 cases of dog food annually and orders 40 cases in each
shipment. The annual carrying cost per case is $5 and the economic order quantity is 25 cases.
Which one of these statements best applies to this situation?
85. What are the expected annual savings from a lock-box system that collects 150 checks
per day averaging $500 each, and reduces mailing and processing times by 2.5 and 1.5 days,
respectively, if the annual interest rate is 7%?
86. Potential savings from a lock-box system will be reduced by:
87. Which one of the following conditions would make a lock-box system potentially more
attractive to a firm?
88. How much money can be saved annually by setting up a lock-box system that will
process 500 checks per day at a cost of $0.15 per check if each check averages $220, collection
float is reduced by 3 days, and the annual interest rate is 8%? (Use a 365-day year.)
89. Which one of the following is
not
an inventory carrying cost?
90. How much time must be saved to justify a lock-box system that processes 350 checks
per day at an average amount of $400 per check if the system will cost $20,000 annually and
interest rates average 8%?
91. If the marginal order costs exceeds the marginal carrying cost of inventory, then the firm:
92. Assume a firm can either hold cash paying no interest or invest in marketable securities.
Which one of the following might induce the manager to hold higher cash balances today?
93. Which of the following is
not
a money market instrument?
94. Which one of the following statements is true regarding repurchase agreements?
95. The financial manager of a firm does not maintain a ledger balance but refers to the bank
balance as it appears online to determine the amount of funds in the firm's checking account.
What is the financial manager ignoring?
96. How much value would be added to a firm that could permanently reduce its collection
period by 2 days if daily collections average $10,000 and the opportunity cost is 5% annually?
97. FastBucks has offered to set up a concentration banking system that will save 3 days of
mail float and 1 day of processing float. Your receivables average $20,000 per day and the
opportunity cost of funds is 6%. How much would you be willing to pay FastBucks annually to
administer the system perpetually?
98. Calculate the implied cost of trade credit for firms that do not take advantage of cash
discounts, based on terms of sale of 5/15, net 60. By how much does this implied cost change if
the discount is increased by 1% and the net payment period is increased to 90 days?
99. Would it ever make financial sense to forgo cash discounts that are offered from
suppliers? Can you provide an example?
100. Why will sellers be less reluctant to grant credit under terms of a banker's acceptance?
How do the acceptances work, in general?
101. Discuss the premise behind the validity of a numerical credit scoring system.
102. Determine the break-even probability of collection for the following seller: $2,000 average
invoice, 64% costs, 1% per month opportunity cost of capital. Assume all dollar values are present
values.
103. Smith Corp. produces a product that generates repeat orders on an annual basis. The
product has a current price of $2,500 and a current cost of $2,100. The company uses a 15%
opportunity cost of capital. Due to the product's high cost, there is a 17% chance that each new
customer will default on payment. If the customer does not default, then business from that
customer forms an infinite annuity income stream. What is the expected profit from granting
credit to a new customer under these conditions?
