31.5 Break-even probability = 0.9 (i.e., 0.9 × 120 − (1 − 0.9) × 1,080 = 0). The lower the profit margin, the higher the break-even probability of collection. Break-even probability =

1 − profit margin = 1 − 120/1,200 = 0.9.

31.6 The benefits of a lockbox system, and therefore the price that you should be prepared to pay, are higher when

a. Payment size is higher (because interest is earned on more funds).

b. Payments per day are higher (because interest is earned on more funds).

c. The interest rate is higher (because the cost of idle money is higher).

d. Mail time saved is higher (because you earn interest on the funds for longer).