# Question

Bird’s 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 1.5 days. Based on the following information, should the lockbox system be adopted?

Average number of payments per day........ 800

Average value of payment........... $750

Variable lockbox fee (per transaction)....... $.15

Annual interest rate on money market securities... 5.5%

How would your answer change if there were a fixed charge of $5,000 per year in addition to the variable charge? Assume 365 days per year.

Average number of payments per day........ 800

Average value of payment........... $750

Variable lockbox fee (per transaction)....... $.15

Annual interest rate on money market securities... 5.5%

How would your answer change if there were a fixed charge of $5,000 per year in addition to the variable charge? Assume 365 days per year.

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