Provide detailed descriptions and show all calculations used to arrive at solutions for the following questions:

1.Community Hospital has annual net patient revenues of $150 million. Atthe present time, payments received by the hospital are not depositedfor six days on average. The hospital is exploring a lockbox arrangementthat promises to cut the six days to one day. If these funds releasedby the lockbox arrangement can be invested at 8 percent, what will theannual savings be? Assume the bank fee will be $2,000 per month.

2.St. Luke’s Convalescent Center has $200,000 in surplus funds that itwishes to invest in marketable securities. If transaction costs to buyand sell the securities are $2,200 and the securities will be held forthree months, what required annual yield must be earned before theinvestment makes economic sense?

3. Your firm is considering the following three alternative bank loans for $1,000,000:

a) 10 percent loan paid at year end with no compensating balance
b) 9 percent loan paid at year end with a 20 percent compensating balance
c) 6 percent loan that is discounted with a 20 percent compensating balance requirement

Assumethat you would normally not carry any bank balance that would meet the20 percent compensating balance requirement. What is the rate of annualinterest on each loan?

4.An important source of temporary cash is trade credit, which does notactually bring in cash, but instead slows its outflow. Vendors oftenprovide discounts for early payment. What is the formula to determinethe effective interest rate if the discount is not utilized?

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