Question 1 Gentfist, a machine manufacturer, has discovered that the majority of its customers are in the north. As a result, it is considering employing a lockbox system provided by a bank in Penang. According to the bank, using the method will shorten collection time by three days. The following information is about the company:

Average number of payments per day = 550 Average value of payment = $950 Variable lockbox fee (per transaction) = $0.25 Annual interest rate on money market securities 8%

Required: (i) Should the lockbox system be implemented? (ii) How would your answer change if there were a fixed charge of $75,000 per year in addition to the variable charge? (iii) What are the advantages of utilizing a lockbox? What is the mechanism behind it? How can a company evaluate the lockbox system's economics?