Question
Drexel Student Loans is an agency that not only gives out educational loans to Drexel students, but also handles the payments from alumni who are
Drexel Student Loans is an agency that not only gives out educational loans to Drexel students, but also handles the payments from alumni who are paying back their loans after graduation. A group of alumni across the country insist on making their payments by mail, instead of online, and Drexel is concerned about the lost interest revenue on the money while the payments are in transit. They are considering opening Post Office Boxes (P.O. Boxes) around the country and hiring part-time workers at each location who will check the P.O. Box daily and make a deposit. The potential P.O. Box locations are Tucson, Reno, Charlotte, and New York City. Drexel is looking to group alumni into zones and assigning each zone to a P.O. Box. The number of days it takes for mail to travel from each customer zone to each potential P.O. Box location, as well as the daily payment total submitted by the alumni in that zone are as follows:
Part | Fixed cost | Varible cost | Purchase cost | Maunfracting Time |
Spring Mechnisim | $1,000 | $0.40 | $0.65 | 0.9 |
Red cover | $1,200 | $2.90 | $3.45 | 2.2 |
Black cover | $1,900 | $3.15 | $3.70 | 3 |
Solid metal Base | $1,500 | $0.30 | $0.50 | 0.8 |
Clear plastic Base | $1,500 | $0.55 | $0.70 | 1 |
The payments submitted by the alumni earn 0.05% interest per day after being deposited by Drexel, and the interest is compounded on a daily basis. This means that if an alum submits a payment of $1000 that spends 2 days in the mail, Drexel loses $0.50 of interest income for the first day and another $0.50025 of interest income for the second day, for a total of $1.00025 of lost interest revenue. Help Drexel determine the best places to locate P.O. Boxes to minimize lost interest revenue. Would your answer change if you knew that each P.O. Box will be charged an annual fee between $2,000 and $3,000 by the post office?
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