Lockbox system Hardin-Gehr Corporation (HGC) began operations 5 years ago as a s

Question

Lockbox system

Hardin-Gehr Corporation (HGC) began operations 5 years ago as a small firm serving customers in the Detroit area. However, its reputation and market area grew quickly. Today HGC has customers all over the United States. Despite its broad customer base, HGC has maintained its headquarters in Detroit; and it keeps its central billing system there. On average, it takes 5 days from the time customers mail in payments until HGC can receive, process, and deposit them. HGC would like to set up a lockbox collection system, which it estimates would reduce the time lag from customer mailing to deposit by 3 days-bringing it down to 2 days. HGC receives an average of $1,300,000 in payments per day.

How much free cash would HGC generate if it implemented the lockbox system? Round your answer to the nearest cent.
$  

Would this be a one-time cash flow or a recurring one, assuming the company ceases to grow?

I. one time cash grow.
II. recurring cash flow

How would growth affect your answer?
If the firm grows, cash flow

I. Would be a one time cash flow

II. Would Increase by differential growth

III.Would decrease by differential growth

If HGC has an opportunity cost of 10%, how much is the lockbox system worth on an annual basis? Round your answer to the nearest cent.
$  

What is the maximum monthly charge HGC should pay for the lockbox system? Round your answer to the nearest cent.
$  

I. Would be a one time cash flow

II. Would Increase by differential growth

III.Would decrease by differential growth

If HGC has an opportunity cost of 10%, how much is the lockbox system worth on an annual basis? Round your answer to the nearest cent.
$  

What is the maximum monthly charge HGC should pay for the lockbox system? Round your answer to the nearest cent.
$  

Explanation / Answer

HGC would generate free cash from operations if it implemented the lockbox system an amount of $3,900,000.

It wil be one time cashflow. Because after that the cashflow will be same in coming years.

But if daily payments increase due to company's grwoth then it will change.

f HGC has an opportunity cost of 10%, the lockbox system is worth $3,900,000 on an annual basis

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