In: Finance
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 2.5 days. Assume 365 days a year. |
Average number of payments per day | 710 | ||
Average value of payment | $ | 660 | |
Variable lockbox fee (per transaction) | $ | .20 | |
Annual interest rate on money market securities | 4.6 | % | |
a. |
What is the NPV of the new lockbox system? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
b. | Suppose in addition to the variable charge that there is an annual fixed charge of $4,000 to be paid at the end of each year. What is the NPV now? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |