28.11 It takes the Herman Company about seven days to receive and deposit checks from customers. The top management of the Herman Company is considering a lockbox system.

It is expected that the lockbox system will reduce float time to four days. Average daily collections are $100,000. The marketwide interest rate is 12 percent.

a. What would the reduction in outstanding cash balances be as a result of implementing the lockbox system?

b. What is the return that could be earned on these savings?

c. What is the maximum monthly charge the Herman Company should pay for this lockbox system?