What is the reduction in outstanding cash balances

Reference no: EM13266243

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 $127,000, and the required rate of return is 6 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?

b. What is the daily dollar return that could be earned on these savings?

Reference no: EM13266243

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