Another local bank will set up the lock box for a 10000


Most of the customers of Crunchy Granola Inc., a Tennessee manufacturer of the Dirty Hippy line of hemp products, are located in the New England area. To speed collections of its receivables, the firm is considering using a lockbox system at a Boston bank, which should reduce collection time by three days. Monthly sales from the region are $21.6 million with an average invoice size of $1,200. The bank will charge a $0.35 transaction fee for each check processed. Should the firm adopt the lockbox system if the annual interest rate on money market investments is 3.625%? Another local bank will set up the lock box for a $10,000 annual set up fee and $0.30 a check processing fee. How does this competing offer compare to the other?

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Finance Basics: Another local bank will set up the lock box for a 10000
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