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Centilux Corporation currently receives all customer payments at its headquarters and then send all those checks to its bank for processing. This policy leads to
Centilux Corporation currently receives all customer payments at its headquarters and then send all those checks to its bank for processing. This policy leads to an 8-day payment processing cycle. Centilux is considering asking customers to send their payments directly to a bank lockbox collection system. The new policy would reduce average mailing time for customer payments by 3 days and reduces average check-processing time by 1 day. Annual collections are $547.5 million, and the average number of payments received total 1,500 per day (assume 365 days per year). The bank has agreed to process the payments for an annual fee of $370,000 plus $0.19 per payment received. a) Assuming the company can earn 14% on released funds, what is the net benefit (NPV) of establishing the new policy? [7 points) b) Do you recommend using the lockbox and why? [3 points] Centilux Corporation currently receives all customer payments at its headquarters and then send all those checks to its bank for processing. This policy leads to an 8-day payment processing cycle. Centilux is considering asking customers to send their payments directly to a bank lockbox collection system. The new policy would reduce average mailing time for customer payments by 3 days and reduces average check-processing time by 1 day. Annual collections are $547.5 million, and the average number of payments received total 1,500 per day (assume 365 days per year). The bank has agreed to process the payments for an annual fee of $370,000 plus $0.19 per payment received. a) Assuming the company can earn 14% on released funds, what is the net benefit (NPV) of establishing the new policy? [7 points) b) Do you recommend using the lockbox and why? [3 points]
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