iPad 1:42 AM ezto.mheducation.com k Question 2 (of 2) value: 10.00 points It tak

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iPad 1:42 AM ezto.mheducation.com k Question 2 (of 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 $132,000, and the required rate of return is 4 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 References eBook & Resources 41% Save & Exit Submit

Explanation / Answer

Answer:a Calculation of the reduction in outstanding cash balances as a result of implementing the lockbox system:

=3 days*$132000=$396000

Answer: b Calculation of the daily dollar return that could be earned on these savings? (Round your answer to 2 decimal places.

First, figure the average daily rate: (1+r)^(1/365)-1 = 1.04^(1/365)-1 = .0001074598

Now multiply: $396,000 x.0001074598 = $42.554, or $42.55 rounded

Answer:c-1 First, we need to convert the annual rate to a monthly rate: (1+r)^(1/12)-1 = 1.04^(1/12)-1 = 0.00327373

use the perpetuity formula to solve:

PV = c / r
396,000 = c /0.00327373
396,000*0.00327373 = c
1296.39708 = c

Or rounded, $1296.41

Answer:c-2 use the perpetuity due formula to solve:

c = (PV * r) / (1+r)
c = (396,000*0.00327373) /1.00327373
c = 1292.168

Or rounded, $1292.17

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