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Anne Teak, the financial manager of a furniture manufacturer, is considering operating a lockbox system. She forecasts that 350 payments a day will be made

Anne Teak, the financial manager of a furniture manufacturer, is considering operating a lockbox system. She forecasts that 350 payments a day will be made to lockboxes with an average payment size of $2,000. The banks charge for operating the lockboxes is $0.45 a check. Assume an interest rate of 9% and a 365-day year.

  1. If the adoption of the lockbox system can reduce 0.5 day to collect and process each check, should the lockbox system be accepted? What reduction in the time to collect and process each check is needed to justify use of the lockbox system?
  2. Anne Teak further estimates that the lockbox system can reduce the average mail time by 1 day and can save a combined clearing and processing time of 0.5 days by putting the checks into the clearing system sooner. The firm receives 320 checks a day on with an average value of $2,500 each. What is the annual amount of income the bank can earn if it installs this service?

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