Question
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
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 $128,000, and the required rate of return is 5 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 |
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