Speedway Owl Company franchises "Gas and Go" stations in North Carolina and Virginia. All payments by franchisees for gasoline and oil products, which average $420,000 a day, are by check. At present, the overall time between the mailing of the check by the franchisee to Speedway Owl and the time the company has collected or available funds at its bank is six days.
a. How much money is tied up in this interval of time?
b. To reduce this delay, the company is considering daily pickups from the stations. In all, three cars would be needed and three additional people hired. This daily pickup would cost $93,000 on an annual basis, and it would reduce the overall delay by two days. Currently, the opportunity cost of funds is 9 percent, that being the interest rate on marketable securities. Should the company inaugurate the pickup plan? Why?
c. Rather than mail checks to its bank, the company could deliver them by messenger service. This procedure would reduce the overall delay by one day and cost $10,300 annually. Should the company undertake this plan? Why?