Problem No 01

Shell Company franchises "Caltax " stations in Washington DC and Virginia . All payments by franchisees for gasoline and oil products, which average $ 410,000 a day, are by check. Presently, the overall time between the mailing of the check by the franchisee to Shell Company and the time the company collected or available funds at its bank is five days? a. How much money is tied up in this interval of time? b. To reduce this delay, the company is considering daily pickups from the stations. In all, three cars would be needed and three additional people hired. This delay pickup would cost $ 88,000 on an annual basis, and it would reduce the overall delay by two days. Currently, the opportunity cost of funds is 7 percent, that being the interest rate on marketable securities. Should the company inaugurate the pickup plan? Why?