Qtime Products believes that use of a lockbox system can
Qtime Products believes that use of a lockbox system can shorten its accounts receivable collection period by four days. The firm’s annual sales, all on credit, are $65 million, billed on a continuous basis. The firm can earn 9% on its short-term investments. The cost of the lockbox system is $57,500 per year. Assume a 365-day year.
a. What amount of cash will be made available for other uses under the lockbox system?
b. What net benefit (or cost) will the firm receive if it adopts the lockbox system? Should it adopt the proposed lockbox system?
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