Company FFF does business nationally and currently all cheques are sent to the headquarters in...
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Company FFF does business nationally and currently all cheques are sent to the headquarters in Toronto. The company is considering a lock-box system that will have cheques processed in Vancouver, Montreal, and Halifax. The Toronto office will continue to process the cheques it receives in-house.
- Collection time will be reduced by 3 days on average
- Daily interest rate on T-bills = 0.02%
- Average number of daily payments to each lockbox is 6000
- Average size of payment is $500
- The processing fee is $0.2 per cheque plus $10 to wire funds to a centralized bank at the end of each day.
- What is the increased bank balance ?
- What is the NPV of lock-box system ? and should the company accept the system ?
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