Company is nvestigating th possibility of using lockbox system. a typical year recieves $12 Million by check (6,000 checks. The bank will expidite checks ans associated documents through the lock box system for .20 per check. The freed uo cash could be invested in a near cash assets portfolio that will yeild an annual before tax return of 7%. using 365 day year in procedures.
a. What reduction of check collection time is necessary to be better or no worse off for having addopted system?
b. How would olution be affected if it could invest the freed up balances at an expected rate of return of only 4.5%.
c. What is logical explanation of differences in answers to a and b.