ASSUME THAT THE FIRM CAN EARN 10 PERCENT ON MARKETABLE SECURITIES AND THAT THERE ARE 260 WORKING DAYS AND HENCE 260 TRANSFERS FROM EACH OF THE TEN LOCKBOX LOCATIONS PER YEAR.
Drugs ‘R Us operates a mail order pharmaceutical business on theWest Coast. The firm receives anaverage of $325,000 in payments per day. On average, it takes fourdays for the firm to receive payment,from the time customers mail their checks to the time the firmreceives and processes them. A lockboxsystem that consists of ten local depository banks and aconcentration bank in San Francisco would cost$6,500 per month. Under this system, customers’ checks would bereceived at the lockbox locations oneday after they are mailed, and the daily total would be wired tothe concentration bank at a cost of $9.75each. Assume that the firm can earn 10 percent on marketablesecurities and that there are 260working days and hence 260 transfers from each of the ten lockboxlocations per year.
b. What is the dollar benefit of the system to Drugs’R Us?
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