Problem 7-46 Baktoo Basics Ltd. is considering introducing an inventory control system that will increase inventory...
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Problem 7-46 Baktoo Basics Ltd. is considering introducing an inventory control system that will increase inventory turnover from 10 to 15 times per year. Its annual cost of goods sold is expected to be $7.6 million, and its financing costs are at 11 percent. Should Baktoo Basics consider an expenditure of $25,500 on the new control system? Yes O No Problem 7-3 Aurora Electrical Company of Yellowknife ships wind turbines throughout the country. Mr. Beam, the financial manager, has determined that through the establishment of local collection centres around the country, he can speed up the collection of payments by two days. Furthermore, the cash management department of the company's bank has indicated to him that he can defer payments on his accounts by one day without offending suppliers. The bank has a remote disbursement centre in New Brunswick. a. If Aurora Electrical Company has $2.65 million per day in collections and $1.13 million per day in disbursements, how many dollars will the cash management system free up? (Enter the answer in dollars not in millions.) Freed-up funds b. If Aurora Electrical Company can earn 9% percent per annum on freed-up funds, how much income can be generated? (Enter the answer in dollars not in millions.) Interest on freed-up cash c. If the total cost of the system is $440,000 should it be implemented? Yes No Problem 7-46 Baktoo Basics Ltd. is considering introducing an inventory control system that will increase inventory turnover from 10 to 15 times per year. Its annual cost of goods sold is expected to be $7.6 million, and its financing costs are at 11 percent. Should Baktoo Basics consider an expenditure of $25,500 on the new control system? Yes O No Problem 7-3 Aurora Electrical Company of Yellowknife ships wind turbines throughout the country. Mr. Beam, the financial manager, has determined that through the establishment of local collection centres around the country, he can speed up the collection of payments by two days. Furthermore, the cash management department of the company's bank has indicated to him that he can defer payments on his accounts by one day without offending suppliers. The bank has a remote disbursement centre in New Brunswick. a. If Aurora Electrical Company has $2.65 million per day in collections and $1.13 million per day in disbursements, how many dollars will the cash management system free up? (Enter the answer in dollars not in millions.) Freed-up funds b. If Aurora Electrical Company can earn 9% percent per annum on freed-up funds, how much income can be generated? (Enter the answer in dollars not in millions.) Interest on freed-up cash c. If the total cost of the system is $440,000 should it be implemented? Yes No
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