It takes Cookie Cutter Modular Homes, Inc., about six days to receive and deposi
ID: 2749295 • Letter: I
Question
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 $128,000, and the required rate of return is 5 percent per year. Assume 365 days per year.
1. What is the reduction in outstanding cash balances as a result of implementing the lockbox system?
2. What is the daily dollar return that could be earned on these savings?
3. 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? Maximum Monthly Charge ___________________________
4. 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? Maximum Monthly Charge ______________________
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 $128,000, and the required rate of return is 5 percent per year. Assume 365 days per year.
1. What is the reduction in outstanding cash balances as a result of implementing the lockbox system?
2. What is the daily dollar return that could be earned on these savings?
3. 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? Maximum Monthly Charge ___________________________
4. 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? Maximum Monthly Charge ______________________
Explanation / Answer
Answer: 1
Answer: 2
Answer: 3
Maximum Monthly Charge if the payment is due at the end of the month
Answer: 4
Maximum Monthly Charge if the payment is due at the beginning of the month
Average Daily Collection 128000 Required Rate of Return 5% Days in a Year 365 Time Taken in Receipt & Deposit 6 Reduced receipt and deposit times 3 Reduction in receipt and deposit (6-3) 3Related Questions
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