c. Since the opportunity cost of the present system ($87,500) exceeds the cost of the lockbox system
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c. Since the opportunity cost of the present system ($87,500) exceeds the cost of the lockbox system ($75,000), the system should be initiated.
Federal State Combined After- Tax Security Tax Tax Effect Expected Return Treasury bills .30 0 .30 (1 - .30)8.00% = 5.60%
Commercial Paper .30 .07 .37 (1 - .37)8.50% = 5.36%
Floating-rate (1 - .70).30 preferred stock = .09 .07 .16 (1 - .16)7.00% = 5.88%
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