2.value: 10.00 points It takes Cookie Cutter Modular Homes, Inc., about six days

Question

2.value: 10.00 points 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 $127,000, and the required rate of return is 6 percent per year. Assume 365 days per year. a. What is the reduction in outstanding cash balances as a result of implementing the lockbox system? Cash balance reduction $ b. What is the daily dollar return that could be earned on these savings? (Round your answer to 2 decimal places. (e.g., 32.16)) Dollar return $ c-1 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? (Round your answer to 2 decimal places. (e.g., 32.16)) Maximum monthly charge $ c-2 What is the maximum monthly charge Cookie Cutter should pay for this lockbox system if the payment is due at the beginning of the month? (Round your answer to 2 decimal places. (e.g., 32.16)) Maximum monthly charge $

Explanation / Answer

A. What is the reduction in outstanding cash balances as a result of implementing the lockbox system?

3 Days Benefits * 127000$ = 381000$ (Ignoring Interest Rate)

B. What is the daily dollar return that could be earned on these savings?

(381000$ *6%) / 365Days = 62.63$ (Based on 3 Days Cumulative Basis)

(127000$ *6%) / 365Days = 20.88$ (Based on Daily Basison Per Collection of 127000$)

C-1 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?

20.88$*Days Of Months + Interest Savings

(20.88$ * 30Days) + (20.88$ * 30Days)*6%*30/365Days = 626.40+3.09=629.49$

C-2 What is the maximum monthly charge Cookie Cutter should pay for this lockbox system if the payment is due at the beginning of the month

(20.88$ * 30Days) = 626.40$

Note: Answer Given on Assumption Basis

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