Question: ABC Co is considering using a lockbox system. The use of the system will reduce collection time by 2.5 days. The company receives on an

ABC Co is considering using a lockbox system. The use of

ABC Co is considering using a lockbox system. The use of the system will reduce collection time by 2.5 days. The company receives on an average 760 cheques everyday with average value of each cheque being $710. The bank will charge $0.10 processing fee for each cheque. Daily T-bill rate is 0.01% which is equivalent to an annual rate of 3.72%. A. Should ABC Co adopt the lockbox? What is the NPV of the new lockbox system? [4 marks] B. Suppose in addition to the cheque processing fees there is an annual fixed charge of $1,500 to be paid at the end of each year for the lockbox services. What is the NPV now? [3 marks]

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