Author Question: What is a lockbox arrangement, and how does its use reduce a firm's float? What will be an ideal ... (Read 41 times)

Tirant22 · **on:** Jul 10, 2018

What is a lockbox arrangement, and how does its use reduce a firm's float?

What will be an ideal response?

Question 2

The Native Industries, Inc is going to issue 180-day commercial paper to raise 25 million. It
anticipates a discounted interest rate of 13 percent, and dealer placement costs of approximately
60,000.

What is the effective annual cost of credit to Native Industries?
A) 13.46 B) 15.38 C) 14.06 D) 14.45

ebonylittles · **Reply #1 on:** Jul 10, 2018

Answer to Question 1

The lockbox arrangement is based on a simple procedure. The firm's customers are instructed to mail their remittance
checks not to company headquarters or regional offices, but to a numbered post office box. The bank that is providing
the lockbox service is authorized to open the box, collect the mail, process the checks, and deposit the checks directly
into the company's account. Such a system speeds up the conversion of receipts into usable funds by reducing both the
mail and processing float of payments.

Answer to Question 2

D