Should the firm initiate the lockbox system

Reference no: EM13292591

Drugs R us operates a mail-order pharmaceutical business on the west coast. the firm receives an average of $325,000 in payments per day. on average, it takes four days for the fim to receive payment, from the time customers mail their checks to the time the firm receives and processes them. a lockbox systemthat consists of 10 local depository banks and a concentration bank in san francisco would cost $6,500 per month, under this system, customers checks would be received at the lockbox locations one day after thay are mailed, and the daily total would be wired to the concentration bank at a cost of $9.75 each. assume that the firm could earn 10% on marketable securities and that there are 260 working days and hence 260 transfer from each lockbox location per year.

a. what is the total annual cost of operating the lockbox system?
b. what is the dollar benefit of the system to Drugs R Us?
c. should the firm initiate the lockbox system?

Reference no: EM13292591

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