Question
Birds Eye Treehouses. Inc., a Kentucky company, has determined that a majority of its customers are located in the Pennsylvania area. Therefore, it is considering
Birds Eye Treehouses. Inc., a Kentucky company, has determined that a majority of its customers are located in the Pennsylvania area. Therefore, it is considering using a lockbox system offer by a bank located in Pittsburgh. The bank has estimated that use of the system will reduce collection time by 1.5 days.
Average number of payments per day $830
Average value of payment $780
Variable lockbox fee (per transaction) $.15
Annual interest rate on money market securities 5.0%
a. What is the NPV of the new lock system?
b. Suppose in addition to the variable chare that there is an annual fixed charge of $5,000 to be paid at the end of each year. What is the NPV now?
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