Question
5. Arnie's Active Adventure Co. receives an average of 10 cheques per day. The average amount per cheque is $2,400. Arnie is considering a new
5. Arnie's Active Adventure Co. receives an average of 10 cheques per day. The average amount per cheque is $2,400. Arnie is considering a new processing system that is expected to reduce the average collection time by 3 days. The daily interest rate on Treasury bills is .01 percent. What is the expected daily savings of the new system?
6. After a busy summer season the Saskatoon Boat Company has a large cash balance, thanks to hot weather and brisk sales. The company's new CFO is considering investing the cash surplus in five-year high yield bonds currently being offered by another local company. The CEO has asked if these are junk bonds, and the CFO responded by saying that the high return could really help Saskatoon Boat Company to be in a stronger cash position for next summer. What are the pros and cons of this strategy?
7. The ABC Corporation has asked for credit with your firm. ABC has not done business with your firm previously, but you have a strong feeling that if the first order goes well they will become a repeat customer. The company's purchasing manager would like to buy some equipment today at a cost of $425,000, with 30 days credit. Your variable cost for that equipment is $411,500 and your monthly interest rate is 1.25 percent. Your research shows that the probability of ABC defaulting is 5 percent. What is the net present value of this decision?
8.The Lawrence Stone-Age Pottery Co. receives 50 cheques per month from customers. Average payments and clearing times are as follows: five cheques for $21,000, two days; 15 cheques for $58,000, three days; 25 cheques for $37,000, four days; and five cheques for $10,000, five days. Calculate the average daily float, assuming a 360-day year.
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