Firm A has annual revenues of $1 6 billion and can reduce its float by four days using a lockbox system Due to As significant risk, A has a high cost of capital of 22 Firm B has annual revenues of $850 million and can reduce its float by three days using a similar lockbox system Firm B is less risk...

Firm A savings 16 billion 4 365 22 3857534 NPV for Firm A of lockbox 385753 ...

Firm A has annual revenues of $1.6 billion and can reduce its float by four days using

Question:

Firm A has annual revenues of $1.6 billion and can reduce its float by four days using a lockbox system. Due to A’s significant risk, A has a high of 22%. Firm B has annual revenues of $850 million and can reduce its float by three days using a similar lockbox system. Firm B is less risky than Firm A, as evidenced by B’s of 10%. Assuming the lockbox system costs $2 million, which firm benefits more from using the system? If the two firms merge, making it necessary to have only one lockbox system for the combined firm, then how much is the net benefit of having the lockbox system under this circumstance?
Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...