Paper Submarine Manufacturing is investigating a lockbox system to reduce its co

Question

Paper Submarine Manufacturing is investigating a lockbox system to reduce its collection time. It has determined the following:
Average number of payments per day 385
Average value of payment $1,105
Variable lockbox fee (per transaction) $.50
Daily interest rate on money market securities .02%
The total collection time will be reduced by three days if the lockbox system is adopted.
a. What is the PV of adopting the system?
b. What is the NPV of adopting the system?
c. What is the net cash ?ow per day from adopting? Per check?

Explanation / Answer

b. NPV = (2 300 $4,000) - [($0.65 300)/0.0002] = $1,425,000

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