Webb Corporation was founded 20 years ago by its president, Bryan Webb. The company originally began as a mail-order company, but it has grown rapidly in recent years, in large part due to its website. Because of the wide geographical dispersion of the company’s customers, it currently employs a lockbox system with collection centers in San Francisco, St. Louis, Atlanta, and Boston.
Holly Lennon, the company’s treasurer, has been examining the current cash collection policies. On average, each lockbox center handles $207,000 in payments each day. The company’s current policy is to invest these payments in short term marketable securities daily at the collection center banks. Every two weeks, the investment accounts are swept; the proceeds are wire-transferred to Webb’s headquarters in Dallas to meet the company’s payroll. The investment accounts each earn .013 percent per day, and the wire transfers cost .20 percent of the amount transferred.
Holly has been approached by Third National Bank, located just outside Dallas, about the possibility of setting up a concentration banking system for Webb Corp. Third National will accept each of the lockbox center’s daily payments via automated clearinghouse (ACH) transfers in lieu of wire transfers. The ACH-transferred funds will not be available for use for one day. Once cleared, the funds will be deposited in a short-term account, which will yield .013 percent per day. Each ACH transfer will cost $175. Bryan has asked Holly to determine which cash management system will be the best for the company. As her assistant, Holly has asked you to answer the following questions.
QUESTIONS:
1. What is Webb Corporation’s total net cash flow available from the current lockbox system to meet payroll?
2. Under the terms outlined by Third National Bank, should the company proceed with the concentration banking system?
3. What cost of ACH transfers would make the company indifferent between the two systems?
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> Given the following information, calculate the target cash balance using the BAT model:Annual interest rate ………………………………………………………………………. 4.5%Fixed order cost ………………………………………………………………………………. $25Total cash needed ………………………………………………………………………. $10,200How do
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> Locate the Treasury bond in Figure 7.4 maturing in February 2040. Is this a premium or a discount bond? What is its current yield? What is its yield to maturity? What is the bid-ask spread in dollars? Assume a par value of $10,000.Figure 7.4:
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> Solve for the unknown interest rate in each of the following:
> For each of the following, compute the present value:
> For each of the following, compute the future value:
> An All-Pro defensive lineman is in contract negotiations. The team has offered the following salary structure:Time ……………………………………………………………………………..…….. Salary0 ……………………………………………………………………………….. $8,400,0001 …………………………………………………………………………………. $4,700,0002 ……………
> In Problem 4, over what range of lease payments will the lease be profitable for both parties?Problem 4:Assume that your company does not anticipate paying taxes for the next several years. What are the cash flows from leasing in this case?
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> Consider the following premerger information about Firm A and Firm B:Assume that Firm A acquires Firm B via an exchange of stock at a price of $49 for each share of B’s stock. Both Firm A and Firm B have no debt outstanding.a. What will
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> What are the deltas of a call option and a put option with the following characteristics? What does the delta of the option tell you?,,,
> What are the prices of a call option and a put option with the following characteristics?,,,
> A put option and call option with an exercise price of $50 expire in four months and sell for $5.99 and $8.64, respectively. If the stock is currently priced at $52.27, what is the annual continuously compounded rate of interest?
> A put option and a call option with an exercise price of $70 and three months to expiration sell for $1.30 and $6.25, respectively. If the risk-free rate is 3.1 percent per year, compounded continuously, what is the current stock price?
> Say you own an asset that had a total return last year of 11.65 percent. If the inflation rate last year was 2.75 percent, what was your real return?
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> A stock is currently selling for $67 per share. A call option with an exercise price of $70 sells for $3.21 and expires in three months. If the risk-free rate of interest is 2.6 percent per year, compounded continuously, what is the price of a put option
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> If you have $1,275 today, how much will it be worth in six years at 8 percent per year compounded continuously?
> A $1,000 par convertible debenture has a conversion price for common stock of $27 per share. With the common stock selling at $31, what is the conversion value of the bond?
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> Prepare an amortization schedule for a five-year loan of $71,500. The interest rate is 7 percent per year, and the loan calls for equal annual payments. How much interest is paid in the third year? How much total interest is paid over the life of the loa
> Rackin Pinion Corporation’s assets are currently worth $1,065. In one year, they will be worth either $1,000 or $1,340. The risk-free interest rate is 3.9 percent. Suppose the company has an outstanding debt issue with a face value of $1,000.a. What is t
> A one-year call option contract on Cheesy Poofs Co. stock sells for $845. In one year, the stock will be worth $64 or $81 per share. The exercise price on the call option is $70. What is the current value of the stock if the risk-free rate is 3 percent?
> The price of Cilantro, Inc., stock will be either $70 or $90 at the end of the year. Call options are available with one year to expiration. T-bills currently yield 6 percent.a. Suppose the current price of the company’s stock is $80. What is the value o
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> Minder Industries stock has a beta of 1.08. The company just paid a dividend of $.65, and the dividends are expected to grow at 4 percent. The expected return on the market is 10.5 percent, and Treasury bills are yielding 3.4 percent. The most recent sto
> Suppose the real rate is 2.1 percent and the inflation rate is 3.4 percent. What rate would you expect to see on a Treasury bill?
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