chapter-15 - This Accounting Materials are brought to you...

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
This Accounting Materials are brought to you by www.everything.freelahat.com CHAPTER 15 CASH MANAGEMENT [Problem 1] 1. Amount of money in the float = P420,000 x 6/7 = P360,000 2. Income from money market placements (P420,000 x 4/7 x 24%) P57,600 Annual cost of weekly pick -ups (60,000 ) Net disadvantage of weekly pick-ups P (2,600 ) 3. Income from money market placements (P420,000 x 2/7 x 24%) P28,800 Annual cost of bank charges (45,000 ) Net disadvantage of collection through the bank network P(16,200 ) [Problem 2] 1. Effective interest rate = ? a. EIR = 30% b. EIR = (19%/80%) = 23.75% c. EIR = [ (P105,000 – P8,000) / (P500,000 x 80%) ] = 24.25% d. EIR = [ 16% / (100% - 15% - 16%) ] = 23.19% e. EIR = [ (P90,000 – P6,750) / (P500,000 x 67%) ] = P83,250 / P335,000 = 24.85% f. EIR = [ (P90,000 – P6,750) / (P500,000 x 67%) ] = 24.85% g. EIR = [(P90,000–P2,250) / (P500,000-P90,000-P25,000)] = P87,750 / P385,000 = 22.79%
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
This Accounting Materials are brought to you by www.everything.freelahat.com 2. The best loan package for Tribal Hat Company is package "g" with the lowest effective interest rate of 22.79%. [Problem 3] 1. Reduction in cash float = P600,000 x 5 days = P3 million 2. Opportunity cost = P3M x 12% = P360,000 3. Benefit from reducing the float P360,000 Cost of the lock-box system 125,000 Net advantage of the lock-box system P235,000 [Problem 4] 1a. Flat fee ( P80 x 12) P 960 Variable fee [P0.10 x (P10.8M/P1,000)] 1,080 Opportunity cost in compensating balance ( P50,000 x 9%) 4,500 Annual cost of the lock-box system P6,540 1b. Decrease in A/Rec. balance [P10.8 million x (1/360)] = P30,000 The collection is accelerated by a day. 2. Other factors to be considered in the analysis: a. Possible reduction in the cash float. b. Use of other collection strategies such as concentration banking, electronic fund transfer, electronic fund transfer on- point-of-sale (EFTOS), automated clearing house, depository transfer check, and the like . c. Delay in the reduction of recording receivables thus affecting customer 's attitude. e. Impact of changes in costs in the main office.
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern