Birds Eye Treehouses, Inc., a Kentucky company, has determined that a majority o
ID: 2674631 • Letter: B
Question
Birds Eye Treehouses, Inc., a Kentucky company, has determined that a majority of its customers are located in the Pennsylvania area. It therefore is considering using a lockbox system offered by a bank located in Pittsburgh. The bank has estimated that use of the system will reduce collection time by two days. Based on the following information should the lockbox system be adopted? Average Number of payments per day 750 Average value of payment $980 Variable lockbox fee (per transaction) $.35 Annual interest rate on money market securities 7%Explanation / Answer
# payment per day = 750
average value of payment = 980
average receipts per day = 980 * 750 = 735000
interest rate per day = 7%/365 = 0.01917%
interest per day = 735000 * 0.01917% = 140.9589
number of days reduced through service = 2
interest in 2 days = 140.9589*2 = 281.9178
cost of project = payments * cost per transaction = 750 * 0.35 = 262.5
so project should be accepted as cost is less than the benefit
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