Bird's Eye Treehouses, Incorporated, 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 730

Average value of payment. $ 680

Variable lockbox fee (per transaction). $ .10

Annual interest rate on money market securities. 3.8%

a) What is the NPV of the new lockbox system?

b) Suppose in addition to the variable charge that there is an annual fixed charge of $3,000 to be paid at the end of each year. What is the NPV now?