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# P17-1. Nickolas Industries has daily cash receipts of \$350,000. A recent analysis of the firm's collections indicated that the customer's payments...

P17-1. Nickolas Industries has daily cash receipts of \$350,000. A recent analysis of the firm’s collections indicated that the customer’s payments are in the mail an average of 2 days. Once received, the payments are processed in 1/5 days. After payments are deposited, the receipts clear the banking system, on average 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%, would it be economically advisable foe 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.
P17-3. Qtime Products believes that using a lockbox system can shorten its accounts receivable collection period by four days. The firm’s annual sales, all on credit, are \$65 million and are billed on a continuous basis. The firm can earn 9% on its short-term investments. The cost of the lockbox system is \$57,500 per year. Assume a 365 day year.
a. What amount of cash will be made available for others uses under the lockbox system?
b. What net benefit (or cost) will the firm receive if it adopts the lockbox system? Should it adopt the proposed lockbox system?

Solution:
Daily cash reciept =
Average =
Processing
Clear of reciept = 350000
2 days
1/5 days
2.5 days Calculating the collection float = mail float + processing float + avaialbility float
=
2 +...

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