Anne Teak, the financial manager of a furniture manufacturer, is considering operating a lockbox system. She forecasts that 220 payments a day will be made to lockboxes with an average payment size of $3,300. The bank’s charge for operating the lockboxes is $0.58 a check. Assume an interest rate of 8% and a 365-day year.

Anne Teak, the financial manager of a furniture manufacturer, is considering operating a lockbox system. She forecasts that 220 payments a day will be made to lockboxes with an average payment size of $3,300. The bank’s charge for operating the lockboxes is $0.58 a check. Assume an interest rate of 8% and a 365-day year.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 26P

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It takes Cookie Cutter Modular Homes, Incorporated, about six days to receive and deposit checks from customers. The company’s management is considering a lockbox system to reduce the firm’s collection times. It is expected that the lockbox system will reduce receipt and deposit times to three days total. Average daily collections are $136,000 and the required rate of return is an EAR of 6 percent. Assume 365 days per year. a. What is the reduction in the outstanding cash balance as a result of implementing the lockbox system? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) b. What is the daily dollar return that could be earned on these savings? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c-1. What is the maximum monthly charge the company should pay for this lockbox system if the payment is due at the end of the month? (Do not round intermediate calculations and…
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