Bird's Eye Treehouses, Incorporated, a Kentucky company, has determined that a majority of its customers are located in the Pennsylvania area. It therefore is considering using a lockbox system offered by a bank located in Pittsburgh. The bank has estimated that use of the system will reduce collection time by 1.5 days. Assume 365 days a year. Average number of payments per day Average value of payment Variable lockbox fee (per transaction) Annual interest rate on money market securities 850 $ 800 $.10 3.2% a. What is the NPV of the new lockbox system? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Suppose in addition to the variable charge that there is an annual fixed charge of $3,000 to be paid at the end of each year. What is the NPV now? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Bird's Eye Treehouses, Incorporated, a Kentucky company, has determined that a majority of its customers are located in the Pennsylvania area. It therefore is considering using a lockbox system offered by a bank located in Pittsburgh. The bank has estimated that use of the system will reduce collection time by 1.5 days. Assume 365 days a year. Average number of payments per day Average value of payment Variable lockbox fee (per transaction) Annual interest rate on money market securities 850 $ 800 $.10 3.2% a. What is the NPV of the new lockbox system? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Suppose in addition to the variable charge that there is an annual fixed charge of $3,000 to be paid at the end of each year. What is the NPV now? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Chapter17: The Management Of Cash And Marketable Securities
Section: Chapter Questions
Problem 9P
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![Bird's Eye Treehouses, Incorporated, a Kentucky company, has determined that a
majority of its customers are located in the Pennsylvania area. It therefore is considering
using a lockbox system offered by a bank located in Pittsburgh. The bank has estimated
that use of the system will reduce collection time by 1.5 days. Assume 365 days a year.
Average number of payments per day
Average value of payment
Variable lockbox fee (per transaction)
Annual interest rate on money market securities
850
$ 800
$.10
a. NPV
b. NPV
3.2%
a. What is the NPV of the new lockbox system? (Do not round intermediate
calculations and round your answer to 2 decimal places, e.g., 32.16.)
b. Suppose in addition to the variable charge that there is an annual fixed charge of
$3,000 to be paid at the end of each year. What is the NPV now? (A negative answer
should be indicated by a minus sign. Do not round intermediate calculations and
round your answer to 2 decimal places, e.g., 32.16.)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F31dc8c2b-89e7-45b1-a13f-364da8d5627c%2F154234db-41e7-42fa-a21d-a079313a29cc%2Fwohrpsl_processed.png&w=3840&q=75)
Transcribed Image Text:Bird's Eye Treehouses, Incorporated, a Kentucky company, has determined that a
majority of its customers are located in the Pennsylvania area. It therefore is considering
using a lockbox system offered by a bank located in Pittsburgh. The bank has estimated
that use of the system will reduce collection time by 1.5 days. Assume 365 days a year.
Average number of payments per day
Average value of payment
Variable lockbox fee (per transaction)
Annual interest rate on money market securities
850
$ 800
$.10
a. NPV
b. NPV
3.2%
a. What is the NPV of the new lockbox system? (Do not round intermediate
calculations and round your answer to 2 decimal places, e.g., 32.16.)
b. Suppose in addition to the variable charge that there is an annual fixed charge of
$3,000 to be paid at the end of each year. What is the NPV now? (A negative answer
should be indicated by a minus sign. Do not round intermediate calculations and
round your answer to 2 decimal places, e.g., 32.16.)
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