Float Simon Corporation has daily cash receipts of Float Simon Corporation has daily cash receipts of
$65,000. A recent analysis of its collections indicated that $65,000. A recent analysis of its collections indicated that
customers’ payments were in the mail an average of 2.5 customers’ payments were in the mail an average of 2.5
days. Once received, the payments are processed in 1.5 days. Once received, the payments are processed in 1.5
days. After payments are deposited, it takes an average of days. After payments are deposited, it takes an average of
3 days for these receipts to clear the banking system. 3 days for these receipts to clear the banking system.
a. How much collection float (in days and in dollars) does a. How much collection float (in days and in dollars) does
the firm currently have? the firm currently have?
b. If the firm’s opportunity cost is 11%, would it be b. If the firm’s opportunity cost is 11%, would it be
economically advisable for the firm to pay an annual fee of economically advisable for the firm to pay an annual fee of
$16,500 to reduce collection float by 3 days? Show your $16,500 to reduce collection float by 3 days? Show your
solutions. Explain why or why not. solutions. Explain why or why not.
Lockbox system Eagle Industries feels that a lockbox Lockbox system Eagle Industries feels that a lockbox
system can shorten its accounts receivable collection system can shorten its accounts receivable collection
period by 3 days. Credit sales are $3,240,000 per year, period by 3 days. Credit sales are $3,240,000 per year,
billed on a continuous basis. The firm has other equally billed on a continuous basis. The firm has other equally
risky investments that earn a return of 15%. The cost of the risky investments that earn a return of 15%. The cost of the
lockbox system is $9,000 per year. (Note: Assume a 365- lockbox system is $9,000 per year. (Note: Assume a 365-
day year.) day year.)
a. What amount of cash will be made available for other a. What amount of cash will be made available for other
uses under the lockbox system? uses under the lockbox system?
b. What net benefit (cost) will the firm realize if it adopts the b. What net benefit (cost) will the firm realize if it adopts the
lockbox system? lockbox system?
c. Should it adopt the proposed lockbox system? c. Should it adopt the proposed lockbox system?
Float Simon Corporation has daily cash receipts of Float Simon Corporation has daily cash receipts of
$65,000. A recent analysis of its collections indicated that $65,000. A recent analysis of its collections indicated that
customers’ payments were in the mail an average of 2.5 customers’ payments were in the mail an average of 2.5
days. Once received, the payments are processed in 1.5 days. Once received, the payments are processed in 1.5
days. After payments are deposited, it takes an average of days. After payments are deposited, it takes an average of
3 days for these receipts to clear the banking system. 3 days for these receipts to clear the banking system.
a. How much collection float (in days and in dollars) does a. How much collection float (in days and in dollars) does
the firm currently have? the firm currently have?
b. If the firm’s opportunity cost is 11%, would it be b. If the firm’s opportunity cost is 11%, would it be
economically advisable for the firm to pay an annual fee of economically advisable for the firm to pay an annual fee of
$16,500 to reduce collection float by 3 days? Show your $16,500 to reduce collection float by 3 days? Show your
solutions. Explain why or why not. solutions. Explain why or why not.
Lockbox system Eagle Industries feels that a lockbox Lockbox system Eagle Industries feels that a lockbox
system can shorten its accounts receivable collection system can shorten its accounts receivable collection
period by 3 days. Credit sales are $3,240,000 per year, period by 3 days. Credit sales are $3,240,000 per year,
billed on a continuous basis. The firm has other equally billed on a continuous basis. The firm has other equally
risky investments that earn a return of 15%. The cost of the risky investments that earn a return of 15%. The cost of the
lockbox system is $9,000 per year. (Note: Assume a 365- lockbox system is $9,000 per year. (Note: Assume a 365-
day year.) day year.)
a. What amount of cash will be made available for other a. What amount of cash will be made available for other
uses under the lockbox system? uses under the lockbox system?
b. What net benefit (cost) will the firm realize if it adopts the b. What net benefit (cost) will the firm realize if it adopts the
lockbox system? lockbox system?
c. Should it adopt the proposed lockbox system? c. Should it adopt the proposed lockbox system?
Float Simon Corporation has daily cash receipts of Float Simon Corporation has daily cash receipts of
$65,000. A recent analysis of its collections indicated that $65,000. A recent analysis of its collections indicated that
customers’ payments were in the mail an average of 2.5 customers’ payments were in the mail an average of 2.5
days. Once received, the payments are processed in 1.5 days. Once received, the payments are processed in 1.5
days. After payments are deposited, it takes an average of days. After payments are deposited, it takes an average of
3 days for these receipts to clear the banking system. 3 days for these receipts to clear the banking system.
a. How much collection float (in days and in dollars) does a. How much collection float (in days and in dollars) does
the firm currently have? the firm currently have?
b. If the firm’s opportunity cost is 11%, would it be b. If the firm’s opportunity cost is 11%, would it be
economically advisable for the firm to pay an annual fee of economically advisable for the firm to pay an annual fee of
$16,500 to reduce collection float by 3 days? Show your $16,500 to reduce collection float by 3 days? Show your
solutions. Explain why or why not. solutions. Explain why or why not.
Lockbox system Eagle Industries feels that a lockbox Lockbox system Eagle Industries feels that a lockbox
system can shorten its accounts receivable collection system can shorten its accounts receivable collection
period by 3 days. Credit sales are $3,240,000 per year, period by 3 days. Credit sales are $3,240,000 per year,
billed on a continuous basis. The firm has other equally billed on a continuous basis. The firm has other equally
risky investments that earn a return of 15%. The cost of the risky investments that earn a return of 15%. The cost of the
lockbox system is $9,000 per year. (Note: Assume a 365- lockbox system is $9,000 per year. (Note: Assume a 365-
day year.) day year.)
a. What amount of cash will be made available for other a. What amount of cash will be made available for other
uses under the lockbox system? uses under the lockbox system?
b. What net benefit (cost) will the firm realize if it adopts the b. What net benefit (cost) will the firm realize if it adopts the
lockbox system? lockbox system?
c. Should it adopt the proposed lockbox system? c. Should it adopt the proposed lockbox system?
