Bird’s Eye Treehouses, Inc., a Kentucky company, has determined that a majority of its customers are located in the Pennsylvania area. Therefore, it 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?

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

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Average number of payments per day Average value of payment Variable lockbox fee (per transaction) Effective annual rate on money market securities 825 $745 $.15 5.5%