Lockbox system to reduce the firm collection times

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Reference no: EM131073212

It takes Cookie Cutter Modular Homes, Inc., about six days to receive and deposit checks from customers. Cookie Cutter’s management is considering a lockbox system to reduce the firm’s collection times. It is expected that the lockbox system will reduce receipt and deposit times to three days total. Average daily collections are $120,000, 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 $

Reference no: EM131073212

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