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Please help with steps to solve: Nickolas Indus...




Please help with steps to solve: Nickolas Industries has daily cash recepts of $350,000. A recent analysis of the firm's collections indicated that customers' payments are in the mail an average of 2 days. Once received, the payments are processed in 1.5 days. After the payments are deposited, the receipts clear the banking system, on average, in 2.5 days. Assume a 365-day year. a. How much collection float (in days) does the firm have? b. If the firm's opportunity cost is 11 percent, would it be economically advisable for the firm to pay an annual fee of $84,000 for a lockbox system that reduces collection float by 2.5 days? Explain why or why not.,Using your calculations in part (b), I came up with: Opportunity cost 0.11 Lockbox system fee 84,000 PV of cost $763,636.36 NPV -$111,363.64 Negative result?? Please advise of difference, thanks!,I think we're going about this one in a different direction. After reviewing the book, I came up with the following: Mail float 2 days Processing float 1.5 Clear/avail float 2.5 Collection float 6 days Cash Receipts $350,000 Reducing float by 2.5 days Opportunity cost 0.11 Savings from reducing float $96,250 (2.5x350000)x.11 Annual lockbox fee $84,000 Since the cost of the lockbox fee is less than the savings from reducing float, then it would be economically advisable to pay for a lockbox system. What do you think?,Is the way I calculated the problem in the clarification request correct? If differs highly with your original answer.


Paper#13735 | Written in 18-Jul-2015

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