A mail-order firm processes 4,300 checks per month. Of these, 60 percent are for $33 and 40 percent are for $65. The $33 checks are delayed two days on average; the $65 checks are delayed three days on average. Assume 30 days in a month.

e.

How much should the firm be willing to pay to reduce the weighted average float to 1.5 days? t takes Cookie Cutter Modular Homes, Inc., about six days to receive and deposit checks from customers. Cookie Cutters management is considering a lockbox system to reduce the firms collection times. It is expected that the lockbox system will reduce receipt and deposit times to three days total. Average daily collections are $132,000, and the required rate of return is 4 percent per year. Assume 365 days per year.

c-2	What is the maximum monthly charge Cookie Cutter should pay for this lockbox system if the payment is due at the beginning of the month?

No More Pencils, Inc., disburses checks every two weeks that average $94,000 and take five days to clear. How much interest can the company earn annually if it delays transfer of funds from an interest-bearing account that pays .011 percent per day for these five days? Ignore the effects of compounding interest.

No More Books Corporation has an agreement with Floyd Bank whereby the bank handles $4 million in collections a day and requires a $300,000 compensating balance. No More Books is contemplating canceling the agreement and dividing its eastern region so that two other banks will handle its business. Banks A and B will each handle $2 million of collections a day, and each requires a compensating balance of $150,000. No More Books financial management expects that collections will be accelerated by one day if the eastern region is divided.

What is the NPV of accepting the system?

What will be the annual net savings? Assume that the T-bill rate is 2.5 percent annually.

Bird's Eye Treehouses, Inc., a Kentucky company, has determined that a majority of its customers are located in the Pennsylvania area. It therefore is considering using a lockbox system offered by a bank located in Pittsburgh. The bank has estimated that use of the system will reduce collection time by 1.5 days. Assume 365 days a year.

Average number of payments per day		890
Average value of payment	$	840
Variable lockbox fee (per transaction)	$	.15
Annual interest rate on money market securities		4.8	%

What is the NPV of the new lockbox system?

Suppose in addition to the variable charge that there is an annual fixed charge of $5,000 to be paid at the end of each year. What is the NPV now?