AMCO, Inc. wants to determine the efficiency of its cash management system. The firm has inventory which turns 7.2 times per year, an average payment period of 40 days and an average collection period of 60 days. The firm's total annual outlays are $2,500,000. ( Assume a 360-day year.) Calculate AMCO's minimum operating cash balance. AMCO is considering speeding the collection of its accounts receivables by using lockboxes. The lockboxes would reduce average collection period by four days and cost $2,000 in fees. if the firm can earn 13 percent on its short-term investments, what recommendation would you make to the firm regarding the acceptance or rejection of the lockbox system? Provide quantitative support for your recommendation.

Answer rating: 100% (QA)

To calculate AMCOs minimum operating cash balance we need to consider the firms cash conversion cycle The cash conversion cycle represents the time it ... View the full answer