Never Again Enterprises has an agreement with The Worth Bank whereby the bank handles $3.12 million in collections a day

Never Again Enterprises has an agreement with The Worth Bank whereby the bank handles $3.12 million in collections a day and requires a $1,000,000 compensating balance. Never Again is contemplating canceling the agreement and dividing its eastern region so that two other banks will handle its business. Banks A and B will each handle $1.56 million of collections a day, and each requires a compensating balance of $1,550,000. Never Again's financial management expects that collections will be accelerated by one day if the eastern region is divided. The T-bill rate is 4 percent annually. What is the amount of the annual net savings if this plan is adopted?    A.  $10,200 B.  $40,800 C.  $76,500 D.  $102,000 E.  $125,000 NPV = $3,120,000 - [2($1,550,000) - $1,000,000] = $1,020,000 Net savings = 0.04($1,020,000) = $40,800

95.

Mountaintop Inns, a Kentucky company, has determined that a majority of its customers are located in the Pennsylvania area. It therefore is considering using a lockbox system offered by a bank located in Pittsburgh, Pennsylvania. The bank has estimated that use of the system will reduce collection time by one day. In addition to the variable charge shown below, there is also a fixed charge of $4,320 per year for the lockbox system. Assume a year has 365 days. What is the NPV of the lockbox system given the following information?        A.  -$156,727 B.  -$131,301 C.  -$74,208 D.  $11,507 E.  $26,433 NPV = (1 × 750 × $1,800) - [($0.30 × 750)/(1.061/365 - 1)] - [$4,320/0.06] = -$131,301

96.

Cow Chips, Inc., a large fertilizer distributor based in California, is planning to use a lockbox system to speed up collections from its customers located on the East Coast. A Philadelphia-area bank will provide this service for an annual fee of $25,000 plus 12 cents per transaction. The estimated reduction in collection and processing time is one day. The average customer payment in this region is $8,200. Treasury bills are currently yielding 5 percent per year. Assume a year has 365 days. Approximately how many customers each day, on average, are needed to make the system profitable for Cow Chips, Inc.?    A.  56 B.  68 C.  74 D.  83 E.  89 NPV = 0 = ($8,200 × 1 × N) - ($0.12 × N)/0.000134 - $25,000/0.05 N = 68 customers per day