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Chapter 30 prob 26 from Corporate Finance by brealey Where did you get the value on the answer thay I encircled. Thanks Chapter 30 Problem
Chapter 30 prob 26 from Corporate Finance by brealey
Chapter 30 Problem 26P Done Anne Teak, the financial manager of a furniture manufacturer, is considering operating a lockbox system. She forecasts that 300 payments a day will be made to lockboxes, with an average payment size of $1,500. The bank's charge for operating the lockboxes is either S.40 a check or compensating balances of $800,000. a. If the interest rate is 9%, which method of payment is cheaper? b. What reduction in the time to collect and process each check is needed to justify use of the lockbox system? a-1) Solution:- Daily interest saved = 300* 2000* 2 * 0.011% = $ 132 Bank Charges = 300 * 0.40 = $ 120 a-2) Yes, it is worthwhile to adopt the lock-box system because net daily advantage of this new lock- box system in form of interest saving / interest earnings amounting to $ 132 is more than the earlier bank charges amounting to $ 120. b). Solution:- Let the minimum reduction in time be denoted by T. 300 * 2000 *T* 0.011 % = 120.66T = 120 * % T = 1.82 Days. Conclusion:- Minimum reduction in time (T) = 1.82 Days Where did you get the value on the answer thay I encircled. Thanks
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