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Part 1

Lockbox systemEagle Industries feels that a lockbox system can shorten its accounts receivable collection period by

2

days. Credit sales are

$2,800,000

per year, billed on a continuous basis. The firm has other equally risky investments with a return of

20%.

The cost of the lockbox system is

$8,000

per year.

(Note:

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 (cost) will the firm realize if it adopts the lockbox system? Should it adopt the proposed lockbox system?

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Part 1

a. The amount of cash that will be made available for other uses under the lockbox system is

$enter your response here.

(Round to the nearest dollar.)

Part 2

b.The net benefit (cost) the firm will realize if it adopts the lockbox system is

$enter your response here.

(Round to the nearest dollar. Enter a negative number for a net loss.)

Part 3

Should it adopt the proposed lockbox system? (Select the best answer below.)

Yes

No