All Calculations Used to Arrive at Solutions Essay

1. Community Hospital has yearbook net patient revenues of $ one hundred fifty million. At the set out time, pays received by the hospital are non deposited for six old age on average. The hospital is exploring a lockboxwood arrangement that promises to cut the six days to one day. If these funds released by the lockbox arrangement can be expended at 8 percent, what ordain the annual savings be? Assume the desire fee will be $2,000 per month.2. St. Lukes Convalescent Center has $200,000 in surplus funds that it wishes to invest in marketable securities. If transaction costs to deprave and sell the securities are $2,200 and the securities will be held for three months, what required annual yield must be earned before the investment makes economic wiz?3. Your firm is considering the sideline three alternative bank loans for $1,000,000a) 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 requirementAssume that you would normally not carry any bank balance that would meet the 20 percent compensating balance requirement. What is the order of annual interest on each loan?4. An important source of temporary cash is trade credit, which does not actually bring in cash, and instead slows its outflow. Vendors often provide discounts for early payment. What is the regulation to determine the effective interest crop if the discount is not utilized?1. Community Hospital has annual net patient revenues of $150 million. At the present time, payments received by the hospital are not deposited for sixdays on average. The hospital is exploring a lockbox arrangement that promises to cut the six days to one day. If these funds released by the lockbox arrangement can be invested at 8 percent, what will the annual savings be? Assume the bank fee will be $2,000 per month. one-year net patient revenue = $150 mill ion safety-deposit arrangement will earn interest for 5 days(As payment received by the hospital are not deposited for 6 days. Lock box arrangement will cut the 6 days to 1 day). Interest rate = 8%Bank fee = $2,000 per monthSo, interest earned = $150 million *(5/365)*8% = $164,384 one-year bank fee = $2000*12 = $24,000Hence, annual savings = $164,384 $24,000 = $140,3842. St. Lukes Convalescent Center has $200,000 in surplus funds that it wishes to invest in marketable securities. If transaction costs to buy and sell the securities are $2,200 and the securities will be held for three months, what required annual yield must be earned before the investment makes economic sense? Surplus fund = $200,000Transaction cost = $2,200Holding period = 3 monthsSo, yield should be stripped-down $2,200.Let minimum required annual yield = r%So, $200,000*(3/12)*r% = $2,20050,000*r% = 2,200r% = 2,200/50,000 = 4.40%Thus, minimum required annual yield = 4.40%3. Your firm is considering the following t hree alternative bank loans for $1,000,000Assume that you would normally not carry any bank balance that would meet the 20 percent compensating balance requirement. What is the rate of annual interest on each loan? a) 10 percent loan paid at year end with no compensating balance Annual interest rate = 10%b) 9 percent loan paid at year end with a 20 percent compensating balance Annual interest rate = 9%/(1-20%) = 11.25%c) 6 percent loan that is discounted with a 20 percent compensating balance requirement Annual interest rate = 6%/(1-6%)*(1-20%) = 7.98%4. An important source of temporary cash is trade credit, which does not actually bring in cash, but instead slows its outflow. Vendors often provide discounts for early payment. What is the formula to determine the effective interest rate if the discount is not utilized? Effective interest rate if discount is not utilized =Discount %/(1-Discount %) x (360/(Full allowed payment days Discount days)) Example Let credit term is 2/10, n/3 0Then effective interest rate if discount is not utilized =2%/(1-2%)*(360/(30-10)) = 36.73%