Problem: Colburn Inc. is considering a lock box system. The firm has analyzed its credit receipts and determined the following:
Average time checks are in mail -3 days
Average internal check processing time-3 days
Average time to clear the banking system -2 days
Total credit sales - 180 million
Average check --$10,000
Colburn funds its accounts receivable with short-term debt at *%. First Bank has indicated that its lock box system will reduce mail float by an average of one day and eliminate internal processing time. The cost of the system is $0.50 for each check processed, plus 0.05% of gross revenues processed. Should colburn implement the lock box system?