Consider the following five different lock box arrangements:
|
Float Reduction, |
Opportunity |
Annual |
Bank Fee |
|
|
Arrangement |
in Days |
Cost per Year |
Collections |
for Lockbox |
|
A |
3 |
10% |
$1,000,000 |
$500 |
|
B |
5 |
10% |
1,000,000 |
600 |
|
C |
5 |
10% |
1,000,000 |
1,500 |
|
D |
4 |
12% |
500,000 |
500 |
|
E |
3 |
5% |
1,200,000 |
500 |
a. For each arrangement, calculate the benefits from using the lock box system.
b. Considering the bank fee for each arrangement, which lock box systems are attractive?