It takes Cookie Cutter Modular Homes, Inc., about six days to receive and deposit checks from customers. Cookie Cutters management is considering a lockbox system to reduce the firms collection times. It is expected that the lockbox system will reduce receipt and deposit times to three days total. Average daily collections are $123,000, and the required rate of return is 4 percent per year. Assume 365 days per year.

a.	What is the reduction in outstanding cash balances as a result of implementing the lockbox system?

Cash balance reduction

$

b.	What is the daily dollar return that could be earned on these savings? (Round your answer to 2 decimal places. (e.g., 32.16))

Dollar return

$

c-1	What is the maximum monthly charge Cookie Cutter should pay for this lockbox system if the payment is due at the end of the month? (Round your answer to 2 decimal places. (e.g., 32.16))

Maximum monthly charge

$

c-2	What is the maximum monthly charge Cookie Cutter should pay for this lockbox system if the payment is due at the beginning of the month? (Round your answer to 2 decimal places. (e.g., 32.16))

Maximum monthly charge

$

No More Books Corporation has an agreement with Floyd Bank whereby the bank handles $4.2 million in collections a day and requires a $310,000 compensating balance. No More Books is contemplating canceling the agreement and dividing its eastern region so that two other banks will handle its business. Banks A and B will each handle $2.1 million of collections a day, and each requires a compensating balance of $160,000. No More Books financial management expects that collections will be accelerated by one day if the eastern region is divided.

What is the NPV of accepting the system?

NPV

$

What will be the annual net savings? Assume that the T-bill rate is 2.4 percent annually.

Annual net savings

$

Bird's Eye Treehouses, Inc., a Kentucky company, has determined that a majority of its customers are located in the Pennsylvania area. It therefore is considering using a lockbox system offered by a bank located in Pittsburgh. The bank has estimated that use of the system will reduce collection time by 2.0 days. Assume 365 days a year.

Average number of payments per day		810
Average value of payment	$	760
Variable lockbox fee (per transaction)	$	0.20
Annual interest rate on money market securities		5.0	%

What is the NPV of the new lockbox system?

NPV

$

Suppose in addition to the variable charge that there is an annual fixed charge of $4,000 to be paid at the end of each year. What is the NPV now? (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places. (e.g., 32.16))

NPV

$