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In: Finance
Cow Chips, Inc., a large fertilizer distributor based in California, is planning to use a lockbox...
Cow Chips, Inc., a large fertilizer distributor based in California, is planning to use a lockbox system to speed up collections from its customers located on the East Coast. A Philadelphia-area bank will provide this service for an annual fee of $8,000 paid at the end of the year plus 10 cents per transaction. The estimated reduction in collection and processing time is one day. Treasury bills are currently yielding 5 percent per year.
If the average customer payment in this region is $3,100, how many customers are needed, on average, each day to make the system profitable for the company? (Do not round intermediate calculations and round your answer up to the nearest whole number, e.g., 32.)
Solutions
Expert Solution
Ans :
Daily interest rate
(1+5%)^(1/365)-1 = 0.0133681%
Number of customer
(8000/5%)/(3100-0.10/0.0133681%) = 68.03
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