HSA 525 Homework Week 9
16.1 - On a typical day, Park Place Clinic writes $1,000 in checks. It generally takes four days for those checks to clear. Each day the clinic typically receives $1,000 in checks that take three days to clear. What is the clinics average net float?
16.2 - Drugs 'R Us operates a mail order pharmaceutical business on the West Coast. The firm receives an average of $325,000 in payments per day. On average, it takes four days for the firm to receive payment, from the time customers mail their checks to the time the firm receives and processes them. A lockbox system that consists of 10 local depository banks and a concentration bank in San Francisco would cost
$6,500 per month. Under this system, customers' checks would be received at the lockbox locations one day after they are mailed, and the daily total would be wired to the concentration bank at a cost of $9.75 each. Assume that the firm could earn 10 percent on marketable securities and that there are 260 working days and hence 260 transfers from each of the ten lockbox locations per year.
(a) What is the total annual cost of operating the lockbox system?
(b) What is the dollar benefit of the system to Drugs ‘R Us?
(c) Should the firm initiate the lockbox system?
16.4 - Langley Clinics, Inc., buys $400,000 in medical supplies each year (at gross prices) from its major suppliers, Consolidated Services, which offers Langley terms of 2.5/10, net 45. Currently, Langley is paying the supplier the full amount due on Day 45, but it is considering taking the discount, paying on Day
10, and replacing the trade credit with a bank loan that has a 10 percent annual cost.
(a) What is the amount of free trade credit that Langley obtains from Consolidated Services?
(Assume 360 days per year throughout this problem)
(b) What is the amount of costly trade credit?
(c) What is the