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Chapter 3: Q2BP_c (page 220)

Neon Light Company of Kansas City ships lamps and lighting appliances throughout the country. Ms. Neon has determined that through the establishment of local collection centers around the country, she can speed up the collection of payments by three days. Furthermore, the cash management department of her bank has indicated to her that she can defer her payments on her accounts by one-half day without affecting suppliers. The bank has a remote disbursement center in Florida.

c. If the total cost of the new system is $400,000, should it be implemented?

Short Answer

Expert verified

The organization should implement the new system as the benefit is more than its cost.

Step by step solution

01

Factors to be considered before implementing a plan

The organization should consider the following factors before implementing a plan:

  • The cost of the plan to the organization and its impact on the organizational operations.
  • The benefits to be generated by the organization after implementation of the plan.
  • The infrastructure required for appropriately implementing and using a plan.
02

Selection of plan

The plan should be implemented by the organization as the cost of this system will be $400,000 but the amount of cash freed up by the system will be $7,275,000 and the investment of the freed-up cash will generate $436,500 interest income for the organization.

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Most popular questions from this chapter

Discuss the relative volatility of short- and long-term interest rates

Bombs Away Video Games Corporation has forecasted the following monthly sales:

January

\(100,000

February

\)93,000

March

\(25,000

April

\)25,000

May

\(20,000

June

\)35,000

July

\(45,000

August

\)45,000

September

\(55,000

October

\)85,000

November

\(105,000

December

\)123,000

Total annual sales

\(756,000

Bombs Away Video Games sells the popular Strafe and Capture video game. It sells for \)5 per unit and costs \(2 per unit to produce. A level production policy is followed. Each month’s production is equal to annual sales (in units) divided by 12.

Of each month’s sales, 30 percent are for cash and 70 percent are on account. All accounts receivable are collected in the month after the sale is made.

d. Prepare a monthly cash budget for January through December using the cash receipts schedule from part b and the cash payments schedule from part c. The beginning cash balance is \)5,000, which is also the minimum desired.

What are three theories for describing the shape of the term structure of interest rates (the yield curve)? Briefly describe each theory.

Henderson Office Supply is considering a more liberal credit policy to increase sales, but expects that 9 percent of the new accounts will be uncollectible. Collection costs are 6 percent of new sales, production and selling costs are 74 percent, and accounts receivable turnover is four times. Assume income taxes of 20 percent and an increase in sales of $65,000. No other asset build-up will be required to service the new accounts.

a. What is the level of accounts receivable to support this sales expansion?

Postal Express has outlets throughout the world. It also keeps funds for transactions purposes in many foreign countries. Assume in 2010 it held 240,000 reals in Brazil worth 170,000 dollars. It drew 12 percent interest, but the Brazilian real declined 24 percent against the dollar.

b. What is the value of its holdings, based on U.S. dollars, at year-end if instead it drew 9 percent interest and the real went up by 13 percent against the dollar?
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