Fisher-Gardner Corporation (FGC) began operations 5 years ago as a small firm serving customers in the Chicago

Question:

Fisher-Gardner Corporation (FGC) began operations 5 years ago as a small firm serving customers in the Chicago area. However, its reputation and market area grew quickly. Today FGC has customers all over the United States. Despite its broad customer base, FGC has maintained its headquarters in Chicago, and it keeps its central billing system there. On average, it takes 7 days from the time customers mail in payments until FGC can receive, process, and deposit them. FGC would like to set up a lock box collection system, which it estimates would reduce the time lag from customer mailing to deposit by 2 days—bringing it down to 5 days. FGC receives an average of$2,300,000 in payments per day.

a. How much free cash would FGC generate if it implemented the lock box system?Would this be a one-time cash flow or a recurring one, assuming the company ceases to grow? How would growth affect your answer?

b. If FGC has an opportunity cost of 6%, how much is the lock box system worth on an annual basis?

c. What is the maximum monthly charge FGC should pay for the lock box system?

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Opportunity Cost
Opportunity cost is the profit lost when one alternative is selected over another. The Opportunity Cost refers to the expected returns from the second best alternative use of resources that are foregone due to the scarcity of resources such as land,...

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