Question
Cow Chips, Incorporated, a large fertilizer distributor based in California, is planning to use a lockbox system to speed up collections from its customers located
Cow Chips, Incorporated, a large fertilizer distributor based in California, is planning to use a lockbox system to speed up collections from its customers located on the East Coast. A Philadelphia-area bank will provide this service for an annual fee of $11,000 paid at the end of the year plus 15 cents per transaction. The estimated reduction in collection and processing time is one day. Treasury bills are currently yielding 5 percent per year, and there are 365 days per year. If the average customer payment in this region is $5,800, how many customers each day, on average, are needed to make the system profitable for Cow Chips?
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