question archive A company with a 12% cost of capital receives cash inflows from customers throughout the United States and Canada
A company with a 12% cost of capital receives cash inflows from customers throughout the United States and Canada
Subject:FinancePrice: Bought3
A company with a 12% cost of capital receives cash inflows from customers throughout the United States and Canada. Checks take 5 days on average to arrive, but a large commercial bank has proposed to implement a lock box concentration banking system for a $250,000 annual fee which would cut the time a check is in receivables float to an average of 11/2 days. The company's marginal tax rate is 35%. What is the value of the proposed system to the company, and should it be implemented, if the company's daily cash inflows average:
a. $150,000?
b. $300,000?
c. $450,000?
d. $600,000?
