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Chapter 3: 23BP (page 252)
In Problem 22, if the compensating balance were 20 percent instead of 27 percent, would your answer change? Do the appropriate calculation.
The company should follow Duke鈥檚 proposal as the cost of borrowing is less than the cost of not taking the discount.
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Fisk Corporation is trying to improve its inventory control system and has installed an online computer at its retail stores. Fisk anticipates sales of 49,000 units per year, an ordering cost of \(8 per order, and carrying costs of \)1.60 per unit.
d. What is the total cost of ordering and carrying inventory?
By using long-term financing to finance part of temporary current assets, a firm may have less risk but lower returns than a firm with a normal financing plan. Explain the significance of this statement.
City Farm Insurance has collection centers across the country to speed up collections. The company also makes its disbursements from remote disbursement centers so the firm鈥檚 checks will take longer to clear the bank. Collection time has been reduced by two days and disbursement time increased by one day because of these policies. Excess funds are being invested in short-term instruments yielding 12 percent per annum.
a. If City Farm has \(5 million per day in collections and \)3 million per day in disbursements, how many dollars has the cash management system freed up?
Barney鈥檚 Antique Shop has annual credit sales of \(1,620,000 and an accounts receivable balance of \)157,500. Calculate the average collection period (use 360 days in a year).
Fisk Corporation is trying to improve its inventory control system and has installed an online computer at its retail stores. Fisk anticipates sales of 49,000 units per year, an ordering cost of \(8 per order, and carrying costs of \)1.60 per unit.
c. What will the average inventory be?
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