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solve part 1 and 2 of question no. 2 and show the calculations

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Answer #1

Answer to question no. 2(a):

Currently Cookie Cutter Modular Homes, Inc. is having 6 Days receive and deposit checks time, due to use of lock box system this time period of collection has been reduced to 3 Days. Due to that reduction of collection float, the blockage of funds has been reduced equivalent to $3,60,000 [1,20,000 X 3] in complete full year.

Hence, Due to adoption of lock box system the company i.e.Cookie Cutter Modular Homes, Inc. has got the benefit of reduction of blockage of funds and in addition to that they can also earn interest amount by investing the released amount in other alternatives.

Opportunity Cost=$3,60,000 X 4%=$14,400

Answer to question no. 2(b):

Due to adoption of Lock Box System, the Company becomes able to earn interest amount of $14,400. Hence, Value of Lock Box System shall be equivalent to $14,400 i.e. the benefit arise from other alternative through investment.

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