It takes Cookie Cutter Modular Homes, Inc., about six days to receive and deposit checks from customers. Cookie Cutter's management is considering a lockbox system to reduce the firm's collection times. It is expected that the lockbox system will reduce receipt and deposit times to three days total. Average daily collections are $139,000, and the required rate of return is 5 percent per year. Assume 365 days per year.
a.What is the reduction in outstanding cash balances as a result of implementing the lockbox system?