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A company has contracted with their bank to do a collection float study of their current collections process and tried to decide if to use
A company has contracted with their bank to do a collection float study of their current collections process and tried to decide if to use lockbox service provided by the bank. The company has on average sale 80 million per month. Assume 30 days per month. For an average month, the bank has determined that the company has three basic batches of collections with associated collection float as listed below: Batch Avg Collections Days of Float #1 (Local) $ 25,000,000 2 #2 (Regional) $ 15,000,000 4 #3 (Distant) $ 40,000,000 6 The annual volume of checks is 12,000. The companys cost of capital is 7%. If the checks are processed internally, the processing fee would be $0.25 per item. If changing to a lockbox would have no effect on the local collection, but would reduce the regional float by 1 day and the distant float by 2 days. But the lockbox costs $10,000 per year and $0.5 per item processing fee. What is the net profit using lockbox service? Group of answer choices $3,153,667 $208,667 $221,667 $11,666,667
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