Aditya Birla Retail Limited, an Indian retail company, is considering a lockbox system that can shorten its
Question:
Aditya Birla Retail Limited, an Indian retail company, is considering a lockbox system that can shorten its accounts receivable collection by 1 day.
Credit sales are INR 550,000,000 per year, billed on a continuous basis. The firm has other equally risky investments that earn a return of 14%. The cost of the lockbox system is INR 90,000 per year.
a. What amount of cash will be made available for other uses under the lockbox system?
b. What net benefit (cost) will the firm realize if it adopts the system? Should the company adopt it?
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To determine the cash made available for other uses under the lockbox system and the net benefit or cost of adopting the system we need to calculate t...View the full answer
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