Question
(a) Edible Foods has annual sales of $520 million per year and has calculated that the collection float is 10 days. If Edible Foods is
(a) Edible Foods has annual sales of $520 million per year and has calculated that the collection float is 10 days. If Edible Foods is currently paying 8.5 percent on its line of credit, what amount of interest expense could be saved if the collection float is reduced by 3 days? Assume 365 days per year .
(b)Tamu is considering the implementation of a lockbox collection system for its mid-western and western sales regions. Sales in those two regions are 40 percent of Tamu's annual sales of $600 million. The lockbox system will cost $160,000 a year and reduce collection time by 3 days. If Tamu could invest any released funds at 8 percent, should it use the lockbox system? Why or why not?Assume 365 days per year.
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