Bird's Eye Treehouses, Inc., a Kentucky company, has determined that a majority of its customers are located
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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. Assume 365 days a year.
Average number of payments per day730
Average value of payment$680
Variable lockbox fee (per transaction)$0.10
Annual interest rate on money market securities3.8%
What is the NPV of the new lockbox system?
Suppose in addition to the variable charge that there is an annual fixed charge of $3,000 to be paid at the end of each year. What is the NPV now?
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