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Hardin Company began operations 5 years ago as a small rm serving customers in province of llocos Norte. However, its reputation and market area grew
Hardin Company began operations 5 years ago as a small rm serving customers in province of llocos Norte. However, its reputation and market area grew quickly. Today, Hardin has customers all over the llocos Region. Despite its broad customer base, Hardin has maintained its headquarters in Laoag; and it keeps its central billing system there. On average, it takes 5 days from the time customers mail in payments until Hardin can receive, process, and deposit them. Hardin would like to set up a lockbox collection system, which it estimates would reduce the time lag from customer mailing to deposit by 3 days - bringing it down to 2 days. Hardin receives an average of P1,400,000 in payments per day. Required 1. How much free cash would Hardin generate if it implemented the lockbox system? Would this be a one-time cash ow or a recurring one, assuming the company ceases to grow? How would growth affect your answer? 2. If Hardin has an opportunity cost of 10%, how much is the lockbox system worth on an annual basis? 3. What is the maximum monthly charge that Hardin should pay for the lockbox system? Simon Corporation has daily cash receipts of P75,000. A recent analysis of its collections indicated that customers' payments were in the mail an average of 3.5 days. Once received, payments are processed in 1.5 days. After payments are deposited, it takes an average of 4 days for these receipts to clear the banking system. Required 1. How much collection oat (in days) does the firm currently have? 2. If the rm's opportunity cost is 16%, would it be economically advisable for the rm to pay an annual fee of P36,500 to reduce collection oat by 3 days? Explain why or why not
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