Lockbox system Eagle Industries feels that a lockbox system can shorten its accounts receivable collection period by 5 days. Credit sales are $3,200,000 per year, billed on a continuous basis. The firm has other equally risky investments with a return of 15%. The cost of the lockbox system is $9,000 per year. (Note: Assume a 365-day year.) a. What amount of cash will be made available for other uses under the lockbox system? b. What net benefit (cost) will the firm realize if it adopts the lockbox system? Should it adopt the proposed lockbox system? a. The amount of cash that will be made available for other uses under the lockbox system is $ (Round to the nearest dollar.)
Lockbox system Eagle Industries feels that a lockbox system can shorten its accounts receivable collection period by 5 days. Credit sales are $3,200,000 per year, billed on a continuous basis. The firm has other equally risky investments with a return of 15%. The cost of the lockbox system is $9,000 per year. (Note: Assume a 365-day year.) a. What amount of cash will be made available for other uses under the lockbox system? b. What net benefit (cost) will the firm realize if it adopts the lockbox system? Should it adopt the proposed lockbox system? a. The amount of cash that will be made available for other uses under the lockbox system is $ (Round to the nearest dollar.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Lockbox system Eagle Industries feels that a lockbox system can shorten its accounts receivable collection period by 5 days. Credit sales are $3,200,000 per year, billed on a continuous basis. The firm has other
equally risky investments with a return of 15%. The cost of the lockbox system is $9,000 per year. (Note: Assume a 365-day year.)
a. What amount of cash will be made available for other uses under the lockbox system?
b. What net benefit (cost) will the firm realize if it adopts the lockbox system? Should it adopt the proposed lockbox system?
a. The amount of cash that will be made available for other uses under the lockbox system is $
(Round to the nearest dollar.)
Expert Solution
Step 1: Lock Box System
A lock box system is a service that banks provide to enterprises to gather payments from their customers. With this system, instead of sending payments straight to the enterprise, customers forward them to a specific post office box (commonly called the "lock box"). The bank has the responsibility to access this box, manage the payment procedures, and ensure the amounts are directly deposited into the enterprise's bank account.
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