Lockboxes and Collections [L02] 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 $145,000, and the required rate of return is 9 percent per year. a. What is the reduction in outstanding cash balances as a result of implementing the lockbox system? b. What is the dollar return that could be earned on these savings? c. What is the maximum monthly charge Cookie Cutter should pay for this lockbox system if the payment is due at the end of the month? What if the payment is due at the beginning of the month?
Lockboxes and Collections [L02] 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 $145,000, and the required rate of return is 9 percent per year. a. What is the reduction in outstanding cash balances as a result of implementing the lockbox system? b. What is the dollar return that could be earned on these savings? c. What is the maximum monthly charge Cookie Cutter should pay for this lockbox system if the payment is due at the end of the month? What if the payment is due at the beginning of the month?
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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Please explain each step clearly, and no excel formula should be used for solving this problem
![Lockboxes and Collections [L02] 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 $145,000, and the required rate of return is
9 percent per year.
a. What is the reduction in outstanding cash balances as a result of implementing
the lockbox system?
8.
b. What is the dollar return that could be earned on these savings?
c. What is the maximum monthly charge Cookie Cutter should pay for this lockbox
system if the payment is due at the end of the month? What if the payment is due
at the beginning of the month?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fdf6d35cc-4161-4cdd-be7c-2569e323a835%2Fc4a11123-f08e-4cee-94bf-caa964a6f080%2Fjoxufd9m_processed.png&w=3840&q=75)
Transcribed Image Text:Lockboxes and Collections [L02] 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 $145,000, and the required rate of return is
9 percent per year.
a. What is the reduction in outstanding cash balances as a result of implementing
the lockbox system?
8.
b. What is the dollar return that could be earned on these savings?
c. What is the maximum monthly charge Cookie Cutter should pay for this lockbox
system if the payment is due at the end of the month? What if the payment is due
at the beginning of the month?
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