a) Hamilton Inc. is considering the use of a lockbox system for the first time. If...

 

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a) Hamilton Inc. is considering the use of a lockbox system for the first time. If the system is adopted, it will increase the firm's check processing cost by $0.20 per check processed. The firm estimates that the average check size sent to the firm is $1,000. Moreover, the firm estimates that it can earn only 1.5 percent on funds freed up by the lockbox program as a result of the current recession and the willingness of investors to hold short-term risk-free securities that earn very low rates of return. How many days does Hamilton have to save by using the lockbox program to compensate them for the additional $0.20 per check cost of implementing the system? (4 marks) b) Suppose that a firm expects total demand (S) for its product next year to be 5,000 units. Moreover, to place an order the firm incurs an ordering cost (0) of $200, and the carrying cost per unit (C) is $2. What is the economic order quantity (Q*) for the company? (4 marks) c) You have recently been hired to improve the performance of Multiplex Corporation, which has been experiencing a severe cash shortage. As one part of your analysis, you want to determine the firm's cash conversion cycle. Using the following information and a 365-day year, what is your estimate of the firm's current cash conversion cycle? Current inventory = $120,000. Annual sales = $600,000. Accounts receivable = $157,808. Accounts payable = $25,000. Total annual purchases = $365,000. Purchases credit terms: net 30 days. Receivables credit terms: net 50 days. (4 marks) d) The treasurer of the Trinkets Company Ltd is faced with 3 alternative bank loans. The firm wishes to select the one that minimizes its cost of credit on a $300,000 note that it plans to issue in the next few days. Relevant information for the 3 loan configurations is as follows: i A 20% rate of interest with interest paid at the end of the loan period and no compensating balance requirements. ii. A 18% rate of interest and a 22% compensating balance requirement. This loan also calls for interest to be paid at the end of the loan period. iii. A 16% rate of interest that is discounted plus a 22% compensating balance requirement Which is the best of the alternatives (assuming a loan period of 240 days in a 360 day year in each case) (8 marks) a) The Fulcrum Company produces decorative swivel platforms for home televisions. If Fulcrum produces 40 million units, it estimates that it can sell them for $100 each. The variable costs are $65 per unit, whereas the fixed production costs are $1.05 billion. If the Fulcrum Company increases production and sales by 5%, by what percentage will its operating earnings are expected to increase by? a) Hamilton Inc. is considering the use of a lockbox system for the first time. If the system is adopted, it will increase the firm's check processing cost by $0.20 per check processed. The firm estimates that the average check size sent to the firm is $1,000. Moreover, the firm estimates that it can earn only 1.5 percent on funds freed up by the lockbox program as a result of the current recession and the willingness of investors to hold short-term risk-free securities that earn very low rates of return. How many days does Hamilton have to save by using the lockbox program to compensate them for the additional $0.20 per check cost of implementing the system? (4 marks) b) Suppose that a firm expects total demand (S) for its product next year to be 5,000 units. Moreover, to place an order the firm incurs an ordering cost (0) of $200, and the carrying cost per unit (C) is $2. What is the economic order quantity (Q*) for the company? (4 marks) c) You have recently been hired to improve the performance of Multiplex Corporation, which has been experiencing a severe cash shortage. As one part of your analysis, you want to determine the firm's cash conversion cycle. Using the following information and a 365-day year, what is your estimate of the firm's current cash conversion cycle? Current inventory = $120,000. Annual sales = $600,000. Accounts receivable = $157,808. Accounts payable = $25,000. Total annual purchases = $365,000. Purchases credit terms: net 30 days. Receivables credit terms: net 50 days. (4 marks) d) The treasurer of the Trinkets Company Ltd is faced with 3 alternative bank loans. The firm wishes to select the one that minimizes its cost of credit on a $300,000 note that it plans to issue in the next few days. Relevant information for the 3 loan configurations is as follows: i A 20% rate of interest with interest paid at the end of the loan period and no compensating balance requirements. ii. A 18% rate of interest and a 22% compensating balance requirement. This loan also calls for interest to be paid at the end of the loan period. iii. A 16% rate of interest that is discounted plus a 22% compensating balance requirement Which is the best of the alternatives (assuming a loan period of 240 days in a 360 day year in each case) (8 marks) a) The Fulcrum Company produces decorative swivel platforms for home televisions. If Fulcrum produces 40 million units, it estimates that it can sell them for $100 each. The variable costs are $65 per unit, whereas the fixed production costs are $1.05 billion. If the Fulcrum Company increases production and sales by 5%, by what percentage will its operating earnings are expected to increase by?

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a To determine how many days Hamilton Inc needs to save by using the lockbox program to compensate for the additional 020 per check cost we can use th... View the full answer