Problem 27-12 Calculating Transactions Required Cow Chips, Inc., a large fertili

Question

Problem 27-12 Calculating Transactions Required

Cow Chips, Inc., a large fertilizer distributor based in California, is planning to use a lockbox system to speed up collections from its customers located on the East Coast. A Philadelphia-area bank will provide this service for an annual fee of $15,000 paid at the end of the year plus 10 cents per transaction. The estimated reduction in collection and processing time is one day. Treasury bills are currently yielding 5 percent per year.

If the average customer payment in this region is $4,800, how many customers are needed, on average, each day to make the system profitable for Cow Chips? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Cow Chips, Inc., a large fertilizer distributor based in California, is planning to use a lockbox system to speed up collections from its customers located on the East Coast. A Philadelphia-area bank will provide this service for an annual fee of $15,000 paid at the end of the year plus 10 cents per transaction. The estimated reduction in collection and processing time is one day. Treasury bills are currently yielding 5 percent per year.

Explanation / Answer

Answer:

Annual fee bank will charge = $15,000 + variable

trial and error say 5 customer total payment received = $4800 *5 = 24000

investing the amount getting yield of 5 % = 24000*5% = 1200

Threfore we need to increase the no of customers per day

(5%*4800 *X )= $15,000 + 10 cents per transaction

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therefore 10 dollars if 100 parties have made the payment.

Hence the answer is 63 parties because from 63 parties if he receives the payment

4800*63 = 302400 and invest 5% = 15120

cost 15000 + 6.3 =15006

Therefore cow chips wsystem generate profit only when 63 parties make the make if they avail the service of a bank.

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