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Drugs R Us operates a mail-order pharmaceutical business in San Francisco. The firm receives an average of $365,890 in payments per day. On average, it

Drugs R Us operates a mail-order pharmaceutical business in San Francisco. The firm receives an average of $365,890 in payments per day. On average, it takes 4 days from the time customers mail their checks until the firm receives them. The company is considering establishing a lockbox system, in which customers payments would be sent to nearby banks (local in terms of the purchasers) instead of directly to San Francisco. Banks in the lockbox locations would then wire the daily receipts to a single (concentration) bank. The lockbox system, which would consist of 10 local depository banks and a concentration bank, would cost Drugs R Us $6,386 per month. Under this system, customers checks would be received at the lockbox locations one day after they are mailed, and the daily total would be wired to the concentration bank at a cost of $8.9 each. Assume that the firm could earn 7 percent on short-term investments; further, assume 260 working days, and hence 260 transfers from each lockbox location, per year.

What is the NET dollar benefit of the system to Drugs R Us?

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