On January 25, 2022, Coated Company has P250,000 deposited with the local bank.
On January 27, 2022, the company writes and mails checks of P20,000 and P60,000 to suppliers. At the end of the month, Coated financial manager deposits a P45,000 check received from a customer in the morning mail and picks up the end-of-month account summary from the bank. The manager notes that only the P20,000 payment of the 27th has cleared the bank. What is Coated available balance with its bank? The book balance?
A firm currently makes only cash sales. It estimates that allowing trade credit on terms on net/30 would increase sales from 100 to 110 units per month. The price per unit is P101, and the cost (in present value terms) is P80. The interest rate is 1% per month. What would be the NPV of a change in the firm’s credit policy? How if 5% of all customers will fail to pay their bills under the new credit policy, will the new credit policy acceptable?
Each business day, on average, a company writes checks totaling $13,000 to pay its suppliers. The usual clearing time for the checks is four days. Meanwhile, the company is receiving payments from its customers each day, in the form of checks, totaling $24,000. The cash from the payments is available to the firm after two days.
a. Calculate the company's disbursement float, collection float, and net float.
b. If the collected funds were available in one day instead of two, what would be the company's disbursement float, collection float, and net float? Suppose you mail a check each month for $1,000 and it takes 3 days to reach its destination, 1 day to process, and 1 day before the bank makes the cash available. What is the average daily float?
Suppose the average daily float is $3 million with a weighted average delay of 5 days. What is the total amount unavailable to earn
What is the NPV of a project that could reduce the delay by 3 days if the cost is $8 million?
The company receives an average of $20,000 in checks per day. The delay in clearing is typically 4 days. The current interest rate is 0.02% per day. What is the highest daily fee the company should be willing to pay to eliminate its float entirely?
QRS makes large cash payments averaging P17,000 daily. The company changed from using checks to sight drafts which will permit it to hold unto its cash for one extra day. If QRS can use the extra cash to earn 14% annually, what annual peso return will it earn? (E)
What is the benefit for a firm with daily sales of $15,000 to be able to reduce the collection period by 2 days, given an 8% annual opportunity cost of funds? (M)
Average daily cash outflows are $3 million for Farms Inc. A new cash management system can add 2 days to the disbursement schedule. Assuming Farms earns 10% on excess funds, how much should the firm be willing to pay per year for the cash management system. (E) Troy Toys is a retailer operating in several cities. Its individual store managers deposit daily collections at a local bank in a noninterest-bearing checking account. Twice per week, the local bank issues a depository transfer check (DTC) to the central bank at headquarters. The controller of the company is considering using a wire transfer instead. The additional cost of each transfer would be $25; collections would be accelerated by two days; and an annual interest rate paid by the central bank is 7.2% (0.02% per day). At what amount of dollars transferred would it be economically feasible to use a wire transfer instead of the DTC? Assume a 360-day year. (M) a. It would never be economically feasible. b. $125.000 or above. c. Any amount greater than $173. d. Any amount greater than $62,500
You place an order for 540 units of Good X at a unit price of $62. 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 implicitly? How many days’ credit are you receiving?
