Problem 4: Drugs 'R Us operates a mail-order pharmaceutical business on the West Coast. The firm...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Problem 4: Drugs 'R Us operates a mail-order pharmaceutical business on the West Coast. The firm receives an average of $325,000 in payments per day. On average, it takes four days for the firm to receive payment, from the time customers mail their checks to the time the firm receives and processes them. A lockbox system that consists of ten local depository banks and a concentration bank in San Francisco would cost $6,500 per month. Under this system, customers' checks would be received at the lockbox locations one day after they are mailed, and the daily total would be wired to the concentration bank at a cost of $9.75 each. Assume that the firm can earn 10 percent on marketable securities and that there are 260 working days and hence 260 transfers from each of the ten lockbox locations per year. Find the dollar benefit of the system to Drugs 'R Us. (Note: For the purpose of this problem, ignore the cost of operating the lockbox system. Note, that the 10 percent is an opportunity cost to the firm; it is the rate of return that the firm is foregoing by not receiving immediate payment from its customers. The sooner the firm receives payment, the sooner Drugs 'R Us can invest the dollars in marketable securities. Find how much additional dollar return the firm could earn if it received payment 4 - 1 = 3 days sooner.) (Note: Unfortunately, it turns out that the annual cost of operating the lockbox system, $103,350, is more than the annual dollar benefit.) Write your answer to the nearest dollar. Do not include the dollar sign in , your answer. Problem 4: Drugs 'R Us operates a mail-order pharmaceutical business on the West Coast. The firm receives an average of $325,000 in payments per day. On average, it takes four days for the firm to receive payment, from the time customers mail their checks to the time the firm receives and processes them. A lockbox system that consists of ten local depository banks and a concentration bank in San Francisco would cost $6,500 per month. Under this system, customers' checks would be received at the lockbox locations one day after they are mailed, and the daily total would be wired to the concentration bank at a cost of $9.75 each. Assume that the firm can earn 10 percent on marketable securities and that there are 260 working days and hence 260 transfers from each of the ten lockbox locations per year. Find the dollar benefit of the system to Drugs 'R Us. (Note: For the purpose of this problem, ignore the cost of operating the lockbox system. Note, that the 10 percent is an opportunity cost to the firm; it is the rate of return that the firm is foregoing by not receiving immediate payment from its customers. The sooner the firm receives payment, the sooner Drugs 'R Us can invest the dollars in marketable securities. Find how much additional dollar return the firm could earn if it received payment 4 - 1 = 3 days sooner.) (Note: Unfortunately, it turns out that the annual cost of operating the lockbox system, $103,350, is more than the annual dollar benefit.) Write your answer to the nearest dollar. Do not include the dollar sign in , your answer.
Expert Answer:
Answer rating: 100% (QA)
Answer To find the dollar benefit of the lockbox system to DrugsR Us we need to calculate the additi... View the full answer
Related Book For
Spreadsheet Modeling & Decision Analysis A Practical Introduction to Management Science
ISBN: 978-0324656633
5th edition
Authors: Cliff T. Ragsdale
Posted Date:
Students also viewed these accounting questions
-
Drugs R us operates a mail-order pharmaceutical business on the west coast, the firm receives an average of $325,000 in payments per day, on average, it takes four days for the film to receive...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
How can your knowledge of meat and meat cookery be used to understand protein substitutions for vegan dishes, such as tofu, texturized soy protein, grains, or beans?
-
If a central bank wants to achieve lower nominal interest rates, it has to raise the nominal interest rate. Explain in what way this statement makes sense.
-
Collins, Inc. has been manufacturing 5,000 units of part 10541 per month, which is used in manufacturing one of its products. At this level of production, the cost per unit to manufacture part 10541...
-
The processes in the Carnot cycle are carried out in a/an (a) Reversible fashion (b) Irreversible fashion (c) Neither (a) nor (b) (d) Both (a) and (b).
-
Harriet's Hats is a retailer who buys hats from a manufacturer and then sells them in its stores. The following information includes the company's December 31, 20Y8 Balance Sheet and the details of...
-
4. Solve for n if 2(nC) = n+1C3-
-
At the end of Year 1, Clayton Company had $7,000 of cash, $8,500 land, $2,500 of liabilities, $4,000 of common stock, and $9,000 of retained earnings. During Year 2, Clayton experienced the following...
-
Conversion Trailer Company plans on selling 5,500 units of a particular trailer model. It can either produce the product in house or purchase it from an outside supplier. The relevant costs are as...
-
List three (3) major influences on pricing decisions. Distinguish between price setters and price takers. Souls Productions is looking to produce a new machine expected to have a...
-
DT, Inc. operates a kiosk in the French Market , selling insanely delicious bourbon-based hot sauce. Each jar sells for $12. The kiosk has shelf space for 1,600 jars and no extra storage. Every...
-
Discuss and explain three reasons that companies invest in debt and equity securities. whats your reaction about this discussion answer? The first reason why companies invest in debt and equity...
-
Activity-based costing is helpful in providing relatively accurate product cost information. However, the value of activity-based costing information goes beyond accurate product costing. When...
-
How to improve asset management for risk assessment and control? Address the following: Include 1 interview. Provide analysis and recommendations for improvement written with CISOS as your primary...
-
A stock has had returns of 8 percent, 26 percent, 14 percent, 17 percent, 31 percent, and 1 percent over the last six years. What are the arithmetic and geometric average returns for the stock?
-
Calculate the volume occupied by isopropanol vapour at \(200^{\circ} \mathrm{C}\) and 10 bar by using (a) Ideal gas equation of state (b) Virial equation of state (c) Virial equation of state \[...
-
The Dieterici equation of state is given by \[ P(V-b) \exp \left(\frac{a}{R T V} ight)=R T \] where \(a\) and \(b\) are constants. Develop the relations to determine the constants \(a\) and \(b\) in...
-
At \(17^{\circ} \mathrm{C}\), at constant pressure, the heat of combustion of amorphous carbon is 96960 cal and that of \(\mathrm{CO}\) to \(\mathrm{CO}_{2}\) is \(67960 \mathrm{cal}\). Determine the...
Study smarter with the SolutionInn App