Centilux Corporation currently receives all customer payments at its headquarters and then send all those checks...

  

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Centilux Corporation currently receives all customer payments at its headquarters and then send all those checks to its bank for processing. This policy leads to an 8-day payment processing cycle. Centilux is considering asking customers to send their payments directly to a bank lockbox collection system. The new policy would reduce average mailing time for customer payments by 3 days and reduces average check-processing time by 1 day. Annual collections are $547.5 million, and the average number of payments received total 1,500 per day (assume 365 days per year). The bank has agreed to process the payments for an annual fee of $370,000 plus $0.19 per payment received. a) Assuming the company can earn 14% on released funds, what is the net benefit (NPV) of establishing the new policy? [7 points] b) Do you recommend using the lockbox and why? [3 points] Questions The Happy Hoppy Brewery sells craft beer to chain grocery stores on credit term of "net 20". Currently, the average collection period is 30 days and sales are $18 million a year. Happy Hoppy is considering changing its credit term to "net 40" to encourage more grocery chains to buy its beer. The firm estimates that increasing the credit period leads to the following: (1) average collection period will increase by 15 days, (2) sales will increase by 18%, (3) inventory will increase by $550,000, and (4) bad-debt loss will increase by $80,000. The Happy Hoppy has variable cost ratio of 0.65 and pretax required rate of return of 16%. Answer the following questions. a) What is the profit contribution of additional sales? [2 points] b) What is the cost of additional investment in accounts receivable? [4 points] c) What is the cost of additional investment in inventory? [2 points] d) Is there a bad-debt loss? [1 point] e) Determine the net effect of this credit period extension on pretax profit of The Happy Hoppy Brewery and if it should implement the credit period extension. [3 points] Questions Qwe sells plastic grains that are used to make juice bottles. The annual demand for the material is 1,000,000 bags, and it is spread evenly throughout the year. Qwe store all if its inventory in a central warehouse. The cost of placing, receiving, and inspecting an order to replenish inventory is $32,500. Qwe's annual carrying costs are 20% of the inventory value, which is $250 per bag. Knowing that Qwe uses the EOQ model of inventory, answer the following questions. a) What is the optimal ordering quantity, Q*? [4 points] b) What is the number of days between orders, T*? [2 points] c) What is total optimal cost of inventory, Total cost*? [4 points] Centilux Corporation currently receives all customer payments at its headquarters and then send all those checks to its bank for processing. This policy leads to an 8-day payment processing cycle. Centilux is considering asking customers to send their payments directly to a bank lockbox collection system. The new policy would reduce average mailing time for customer payments by 3 days and reduces average check-processing time by 1 day. Annual collections are $547.5 million, and the average number of payments received total 1,500 per day (assume 365 days per year). The bank has agreed to process the payments for an annual fee of $370,000 plus $0.19 per payment received. a) Assuming the company can earn 14% on released funds, what is the net benefit (NPV) of establishing the new policy? [7 points] b) Do you recommend using the lockbox and why? [3 points] Questions The Happy Hoppy Brewery sells craft beer to chain grocery stores on credit term of "net 20". Currently, the average collection period is 30 days and sales are $18 million a year. Happy Hoppy is considering changing its credit term to "net 40" to encourage more grocery chains to buy its beer. The firm estimates that increasing the credit period leads to the following: (1) average collection period will increase by 15 days, (2) sales will increase by 18%, (3) inventory will increase by $550,000, and (4) bad-debt loss will increase by $80,000. The Happy Hoppy has variable cost ratio of 0.65 and pretax required rate of return of 16%. Answer the following questions. a) What is the profit contribution of additional sales? [2 points] b) What is the cost of additional investment in accounts receivable? [4 points] c) What is the cost of additional investment in inventory? [2 points] d) Is there a bad-debt loss? [1 point] e) Determine the net effect of this credit period extension on pretax profit of The Happy Hoppy Brewery and if it should implement the credit period extension. [3 points] Questions Qwe sells plastic grains that are used to make juice bottles. The annual demand for the material is 1,000,000 bags, and it is spread evenly throughout the year. Qwe store all if its inventory in a central warehouse. The cost of placing, receiving, and inspecting an order to replenish inventory is $32,500. Qwe's annual carrying costs are 20% of the inventory value, which is $250 per bag. Knowing that Qwe uses the EOQ model of inventory, answer the following questions. a) What is the optimal ordering quantity, Q*? [4 points] b) What is the number of days between orders, T*? [2 points] c) What is total optimal cost of inventory, Total cost*? [4 points]

Answer rating: 100% (QA)

a To calculate the net benefit NPV of establishing the new policy we need to consider the following ... View the full answer