24. Arshadi Wineries is considering the purchase of lockbox services from First

Question

24. Arshadi Wineries is considering the purchase of lockbox services from First Bancorp. Currently, it takes 6 days to collect funds from customers: this would be reduced by 2 days with the lockbox system. The average number of payments received per day is 300 and the average check size is $150. First Bancorp will charge 5e per check in return for operating the lockbox system. Assume one-year T-bills yield 5% and use a 360-day year. i) Calculate the daily rate of return. (ii) Should Arshadi Wineries purchase the system (i.e., is its NPV greater than 0?) (ii) What is the maximum acceptable cost per check that Arshadi Wineries could pay and still find the system acceptable?

Explanation / Answer

i) Daily rate of return= 1.05=(1+r)^360= 0.01355% ii) Yes, NPV=300*150*(6-2)*.01355%-.05*300=$ 9.39 iii) Maximum acceptable cost per check=(300*150*(6-2)*.01355%)/300=$ 0.0813

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

---

---

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