Drugs ‘R Us operates a mail-order pharmaceutical business on the West Coast. The
ID: 2766748 • Letter: D
Question
Drugs ‘R Us operates a mail-order pharmaceutical business on the West Coast. The firm receives an average of $325,000 in payments per day. On average, it takes four days for the firm to receive payment, from the time customers mail their checks to the time the firm receives and processes them. A lockbox system that consists of 10 local depository banks and a concentration bank in San Francisco would be received at the lockbox locations one day after they are mailed, and the daily total would be wired to the concentration bank at a cost of $9.75 each. Assume that the firm could earn 10 percent on marketable securities and that there are 260 working days and hence 260 transfers from each lockbox location per year.
a. What is the dollar benefit of the lockbox system?
b. What is the dollar benefit of the system to Drug ‘R Us
c. Should the firm initiate the lockbox system?
Explanation / Answer
Ans
System cost (6500) x 12
78000
coststransfer coste( 260 days x 9.75 x10)
25 350
Total annual operating costst
103,350
======================
b.Benefits
=325 ,000 x(4-1) x 10% =97,500
==================
c. no
System cost (6500) x 12
78000
coststransfer coste( 260 days x 9.75 x10)
25 350
Total annual operating costst
103,350
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.