Title: Lockboxes and Collection Time, Cash Discount, and Carrying and Restocking Costs

Contents

Page 633: Problem 11

Lockboxes and Collection time (LO2) Lockboxes: Time Bird’s Eye Treehouses Inc., a Kentucky company, has determined that a majority of its customers are located in the Pennsylvania area. It therefore is considering using a lockbox system offered by a bank located in Pittsburgh. The bank has estimated that use of the system will reduce collection time by two days. Based on the following information, should the lockbox system be adopted?

Average number of payments per day                        750

Average value of payment                                       $980

Variable lockbox fee (per transaction)                        $.35

Annual interest rate on money market securities          7.0%

b) How would your answer change if there were a fixed charge of $5,000 per year in addition to the variable charge?

Page 671: Problem 1

Cash Discount: You place an order for 400 units of inventory at a unit price of $125. The supplier offers terms of 1/10, net 30.

a) How long do you have to pay before the account is overdue? If you take the full period, how much should you remit?

b) What is the discount being offered? How quickly must you pay to get the discount? If you do take the discount, how much should you remit?

c) If you don’t take the discount, how much interest are you paying completely? How many days’ credit are you receiving?

Page 673: Problem 11

Redan Manufacturing uses 2,500 switch assemblies per week and then reorders another 2,500. If the relevant carrying cost per switch assemble is $9, and the fixed order cost is $1,700, is Redan’s inventory policy optimal. Why or why not?

The above questions are from the below text:

Ross, S., Westerfield, R., & Jordan, B. (2012). Fundamentals of corporate finance.

Boston, MA: McGraw-Hill/Irwin.

Number of words inclusive of the above questions: 934 (3 pages)