Hardin-Gehr Corporation (HGC) began operations 5 years ago as a small firm servi

Question

Hardin-Gehr Corporation (HGC) began operations 5 years ago as a small firm serving customers in the Detroit area. However, its reputation and market area grew quickly. Today HGC has customers all over the United States. Despite its broad customer base, HGC has maintained its headquarters in Detroit; and it keeps its central billing system there. On average, it takes 6 days from the time customers mail in payments until HGC can receive, process, and deposit them. HGC would like to set up a lockbox collection system, which it estimates would reduce the time lag from customer mailing to deposit by 2 days-bringing it down to 4 days. HGC receives an average of $2,400,000 in payments per day.

How much free cash would HGC generate if it implemented the lockbox system? Round your answer to the nearest cent.

If HGC has an opportunity cost of 6%, how much is the lockbox system worth on an annual basis? Round your answer to the nearest cent.

What is the maximum monthly charge HGC should pay for the lockbox system? Round your answer to the nearest cent.

Explanation / Answer

a) Free cash generated due to implementation of Lockbox = $2,400,000 x 2 Days = $4,800,000

b) Annual worth of Lock-box: A = P*ert , Where P = Savings, e = 2.718281828(exponential), r = opportunity cost, t = number of years
$4,800,000*(e0.06*1) = $5,096,815.42

c) Maximum monthly charge = $5,096,815.42/12 = $424,734.62

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.