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. At
the present time, payments received by the hospital are not deposited
for six days 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.

2.
St. Luke’s 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?

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

Assume
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?

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?