5. The Sirsa Company is a large wholesale distributor of consumer goods that sells mostly on credit. Collections from a particular location average *200,000 per day. The total float averages 6 days for customers in this location. The opportunity cost of funds is 15 per cent.

(a) The company has an offer from a bank to set up a lock-box system that will reduce float by 4 days, but the company will have to maintain a minimum balance of 400,000 with the bank. Should the offer be accepted?

(b) The bank also offers an option of a fixed fee of 20,000 per year. What should the company do?