It takes Cookie Cutter Modular Homes, Inc., about six days to get and deposit checks from customers. Cookie Cutter’s management is considering lockbox system to decrease firm’s collection times. It is expected that lockbox system will decrease receipt and deposit times to 4 days total. Average daily collections are= $131,000, and necessary rate of return is 6% per year. Suppose 365 days per year.
a) Determine the reduction in outstanding cash balances as the result of implementing lockbox system?
b) What is the daily dollar return that could be earned on these savings?
c) 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?
d) What is the maximum monthly charge Cookie Cutter should pay or this lockbox system if the payment is due at the beginning of the month?