Nickolas Industries has daily cash recepts of $350,000. A recent analysis of the firm's collections indicated that customers' payments are in the mail an average of 2 days. Once received, the payments are processed in 1.5 days. After the payments are deposited, the receipts clear the banking system, on average, in 2.5 days. Assume a 365-day year.
a. How much collection float (in days) does the firm have?
b. If the firm's opportunity cost is 11 percent, would it be economically advisable for the firm to pay an annual fee of $84,000 for a lockbox system that reduces collection float by 2.5 days? Explain why or why not.
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