Whitmer Inc

question 76

Multiple Choice

Whitmer Inc.sells to customers all over the U.S. ,and all receipts come in to its headquarters in New York City.The firm's average accounts receivable balance is $2.5 million,and they are financed by a bank loan at an 6.75% annual interest rate.The firm is considering setting up a regional lockbox system to speed up collections,and it believes this would reduce receivables by 20%.If the annual cost of the system is $15,000,what pre-tax net annual savings would be realized?

• A) $22,313
• B) $16,313
• C) $18,750
• D) $21,375
• E) $20,438

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Definitions:

Operating Income

The profit realized from a business's core operations before taxes and interest.

Net Cash Inflows

The amount of cash that a company receives minus the amount of cash it spends over a certain period.

Profitability Computed

Refers to the calculation of a company's earnings versus its expenses to determine financial performance.

Average Annual

Average annual typically refers to the mean amount or figure calculated over a year's period, often used in financial, operational, or performance metrics.