Sherman's Sherbet currently takes about 6 days to collect and deposit checks from customers. A lock-box system

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Sherman's Sherbet currently takes about 6 days to collect and deposit checks from customers. A lock-box system could reduce this time to 4 days. Collections average $15,000 daily. The interest rate is .02% per day.

a. By how much will the lock-box system reduce float?

b. What is the daily interest savings of the system?

c. Suppose the lock-box service is offered for a fixed monthly fee instead of payment per check. What is the maximum monthly fee that Sherman's should be willing to pay for this service? (Assume a 30-day month.)

Sherman's Sherbet currently takes about 6 days to collect and


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Fundamentals of Corporate Finance

ISBN: 978-0078034640

7th edition

Authors: Richard Brealey, Stewart Myers, Alan Marcus

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