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FIN/419 Text Assignment - Week 4 These problems may be submitted in either Word or Excel. All work must be submitted to receive credit. A Plagiarism...

Jones Inc. feels that a lockbox system can shorten its accounts receivable
collection period by 2 days. Credit sales are $5,000,000 per year, billed on a continuous
basis. The firm has other equally risky investments with a return of 15%. The cost of the
lockbox system is $8,500 per year. (Note: Assume a 365-day year.)
FIN/419 Text Assignment – Week 4 These problems may be submitted in either Word or Excel. All work must be submitted to receive credit. A Plagiarism Report is not required. Problem 1: Jones Inc. feels that a lockbox system can shorten its accounts receivable collection period by 2 days. Credit sales are $5,000,000 per year, billed on a continuous basis. The firm has other equally risky investments with a return of 15%. The cost of the lockbox system is $8,500 per year. (Note: Assume a 365-day year.) a. What amount of cash will be made available for other uses under the lockbox system? b. What net benefit (cost) will the firm realize if it adopts the lockbox system? c. Should it adopt the proposed lockbox system? Problem 2: Launch Inc is considering relaxing its credit standards to increase its currently sagging sales. Sales are expected to increase by 20% from 20,000 to 22,000 units during the coming year; the average collection period is expected to increase from 45 to 65 days; and bad debts are expected to increase from 1% to 3% of sales. The sale price per unit is $40, and the variable cost per unit is $31. The firm’s required return on equal-risk investments is 25%. Evaluate the proposed relaxation, and make a recommendation to the firm. (Note: Assume a 365-day year.) Problem 3: Western Financial made a $150,000, 5-year discount loan at 8% interest, requiring a compensating balance equal to 20% of the face value of the loan. Determine the effective annual rate associated with this loan. (Note: Assume that the firm currently maintains $0 on deposit in the financial institution.)
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