MICHAEL: First, the general rule that determines whether to implement the lockbox system is this: If the , then accept the proposal. Therefore, based on this criterion, to the lockbox system. And last, as far as alternative metr choices are available, including CFO: Overall, Michael, you've done a very good job! Now, take it easy this evening and get some rest so tha presentation. I'll see you about an hour before the meeting. Slide \#2: Costs of SSPI's Current Collection System (Eastern Region, Last Year's Data) Annual service charges =$24,000 Annual per-payment processing fees = Released funds = Income earned from the released funds = Cost of lockbox system = Net earnings on the lockbi Net value of the lockbox s the current system = CFO: So, now I have thi s. First, based on these values, how does the Finance lockbox proposal? That is, how should we interpret these values? Second, should we gi system? And finally, are there any other methods that SSPI could use instead of a lock City bank account? Slide \#1: Key Attributes of SSPI's Current Collection System (Eastern Region, Last Year's Data) 1. Our eastern region customers, stores that sell our colored sugar chips and granulated and powered products, remit 7,700 checks per month to our office in Oklahoma City. 2. Annual coliections for the region were $63,875,000. 3. The average delay due to float was 15 days ( 8 days mail flost, 4 days processing float, and 3 days clearing floot). 4. Our Oklahoma City bank currently charges $24,000 per year in service charges and fees of $0.25 per payment to process these Dayments. 5. SSPI maintains a marketable securities portfolio that earns an average return of 4%. CFO: Okay, let's stop here for a second. I have a question. How much does our current system cost us? MICHAEL: Ma'am, you're getting ahead of me a little; that information is detailed on slide 2. Let me show you. Slide \#2: Costs of SSPI's Current Collection System (Eastern Region, Last Year's Data) Annual service charges =$24,000 Annual per-payment processing fees = Cost of the current system = Average collections =$175,000 Released funds = CFO: So, now I have three questions. First, based on these values, how does the Finance Comm lockbox proposal? That is, how should we interpret these values? Second, should we give up system? And finally, are there any other methods that SSPI could use instead of a lockbox s) City bank account? Slide \#4: Evaluation of SSPI's Proposed Lockbox System Average collections =$175,000 Released funds = Income earned from the released funds = Cost of lockbox system = Net earnings on the lockbox system = Net value of the lockbox system over t em= CFO: So, now I have three question: lockbox proposal? That is, how s in these values, how does the Finance Committe ret these values? Second, should we give up system? And finally, are there any otner metnods that SSPI could use instead of a lockbox syste City bank account? CFO: I'm a littie anxious about your presentation to the Finance Committee on Thursday, so I'd like you to run through your comments and presentation slides with me. Because three board members, including the chair and the president, will be attending, I want you to make a very favorable impression. It could mean a great deal to your career with SSPI. An upgrade in our receivables collection system could have a significant effect on both Sspt's relationship and income stream. MICHAEL: Yes, I have my notes and the flash drive with my presentation right here, Let me get things organized and fil begin. After a slight delay, Michael begins his presentation: Good morning. I would the to present to you the findings of our recent evaluation of the system currently used to collect receivables payments from our customers east of the Mississippi River. With our corporate headquarters in Owahoma City, Oklahoma, we currently have broken down the country into two regions: the portion east of the Mississippi River and the portion west of the river, We have also conducted an evaluation of a proposed lockbox system that would break down our customer base into six geographic subregions, with each being served by a lockbox collection center. These collection centers would then transfer the funds to our main concentration account here in oklahoma City. Slide 1 shows you the key attributes of our current system. MICHAEL: First, the general rule that determines whether to implement the lockbox system is this: If the net benefits , then accept the proposal. to the lockbox system. thods are concerned, several choices are available, including CFO: Overall, Michael, you've done a very good job! Now, take it easy this evening and get some rest so that you're rea verage collections =$175,000 eleased funds = ncome earned from the released funds = ost of lockbox system = let earnings on the lockbox system = let value of the lockbox system over the $8,400,000$84,000= CFO: So, now. I have three questions. First, based on these values, how does the Finance Committee lockbox proposal? That is, how should we interpret these values? Second, should we give up our system? And finally, are there any other methods that SSPI could use instead of a lockbox systen City bank account? FO: So, should we switch from our current collection system to the lockbox sys IICHAEL: Yes, I think we should. The bene system is that it saves us ections =$175,000 ds = pox from the released funds = on the lockbox system = the lockbox system over the current system now I have three questions. First, based on thes n? And finally, are there any other methods that $8,270,800 e instead of a lockbox system to return c ank account? ections =$175,000 ds= ied from the released funds = box system = on the lockbox system = the lockbox system over the current system = $96,100 I have three questions. First, based on the $2,479,900 does the Finance Committee know whet x proposal? That is, how should we interpret th cond, should we give up our current syst n ? And finally, are there any other methods that $8,270,800 e instead of a lockbox system to return ank account? Average collections =$175,000 Released funds = Income earned from the released funds = Cost of lockbox system = Net earnings on the lockbox system = Net value of the lackbox system over the current system = CFO: So, now 1 have three questions. First, based on these values, how does the Finance Committee know whether to recommend accepting the lockbox proposal? That is, how should we interpret these values? Second, should we give up our current system and switch to the lockbox system? And finally, are there any other methods that SSPI could use instead of a lockbox system to return customer funds to the Oklahorna City bank account? MICHAEL: First, the general rule that determines whether to implement the lockbox system is this: If the net benefits are , then accept the proposal. Therefore, based on this criterion, to the lockbox system. And last, as far as aitemative methods are concerned, several choices are avallable, including CFO: Overall, Michael, you've done a very good job! Now, take it easy this evening and get some rest so that you're ready for tomorrow's presentation. III see you about an hour before the meeting. Slide \#3: Costs of SSPI's Proposed Lockbox System 1. The average delay due to float will be reduced to 3 days ( 2 days mail float; no processing fioat; 1 day clearing float, induding the wire transfer delay). 2. The bank will eliminate its current service charges and fees but will impose a compensating balance of $35,000 on our oklahoma City account. Similar balances will not be required in the other six banks. 3. Funds feleased by the lockbox system will be invested in marketable securities and will earn an average return of 4%. CFO: So, should we switch from our current collection system to the lockbox system? MICHAEL: Yes, I think we should. The benefit to the lockbox system is that it saves us of float. Wait, let me show you slide 4 . Slide \#4: Evaluation of SSPI's Proposed Lockbox System Average collections =$175,000 Released funds = Income earned from the released funds = Cost of lockbox system = Net earnings on the lockbox system = Net value of the lockbox system over the current system = CFO: So, now I have three questions. First, based on these values, how does the Finance Committee know whether to recommend accepting the lockbox proposal? That is, how should we interpret these values? Second, should we give up our current system and switch to the lockbox system? And finally, are there any other methods that SSPI could use instead of a lockbox system to return customer funds to the Okiahoma City bank account? And last, as far as alternative methods are concerned, several choices are available, including vening and get some rest Slide \# 2: Costs of SSPI's Current Collection System (Eastern Region, Last Year's Annual service charges =$24,000 Annual per-payment processing fees = Cost of the current system = CFO: Good. What's next? MICHAEL: In contrast to the existing system, our Oklahoma City bank has offered to cre ould. The benefit to the lockbox system is that it saves us of float. Wait, let me show you 's Proposed Lockbox System ed funds = MICHAEL: In contrast to the existing system, our Oklahoma City bank has offered to create a lockbox system that would involve customers sending their payments directly to funds to our bank in Oklahoma City in their region. The banks will process the deposits and then wire the are detailed in slide 3. Slide \#3: Costs of SSPI's Propo 1. The average delay due to float will be reduced to 3 days ( 2 days mail float; no processing float; 1 day clearing float, including the wire transfer delay)