Question

Cow Chips, Inc., a large fertilizer distributor based in California, is planning to use a lockbox system to speed up collections from its customers located on the East Coast. A Philadelphia-area bank will provide this service for an annual fee of $9,000 paid at the end of the year plus 15 cents per transaction. The estimated reduction in collection and processing time is one day. Treasury bills are currently yielding 5 percent per year, and there are 365 days per year. If the average customer payment in this region is $5,100, how many customers each day, on average, are needed to make the system profitable for Cow Chips? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

Daily interest rate 0.0133681%(1+5%)^(1/365)-1 Number of customers 45.25 -(9000/5%)/(5100-0.15/0.0133681%)

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