E connect FINA 6341 fall 2017; fall 2017 A Hunter Casselberry chap 27 hw instruc
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E connect FINA 6341 fall 2017; fall 2017 A Hunter Casselberry chap 27 hw instructions I help Question 5 (of 5) ! 6 e Save & Exit Submit value: 10.00 points 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 1.5 days. Average number of payments per day Average value of payment Variable lockbox fee (per transaction) Annual interest rate on money market securities 760 $ 710 $ 10 What is the NPV of the new lockbox system? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV Suppose in addition to the variable charge that there is an annual fixed charge of $3,000 to be paid at the end of each year. What is the NPV now? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV References eBook & Resources Worksheet Difficulty: 2 Intermediate Section: 27.3 Cash Collection and Concentration Check my work = 0 0 8 og 9 9:07 AM 12/8/2017Explanation / Answer
Collection time savings 1.5 days No of payments per day 760 average value of payment per transaction 710 Variable lockbox fee( per transaction) 0.1 Annual interest fees - 3.8 % Fixed cost 3000 (i) NPV of lock box = PV of savings in collection - Pv of cost of lockers PV of savings in collection = Reduction in collection time x daily collections = = 1.5 x 760 x 710 = 809400 PV of cost of locker boxes - Daily interest rate = 3.8/365 = 0.010411 The transaction costs will be paid for perpetuity therefore PV of variable costs = Vatiable cost x no. of transactions per day/ interest rate per day = 0.10 x 760/ 0.00010411 = 730000 NPV = 809400 - 730000 = 79400 NPV is positive therefore project should be accepted. (ii) The fixed charge is additional. Therefore the NPV of this alternative is NPV (Without fixed charge ) - Additional fixed cost (which is also for perpetuity) = 79400 - (3000/0.038) = 452.6316 The NPV is positive therefore the alternative is acceptable with the fixed cost also. Please provide feedback…. Thanks in advance…. :-)
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