What is the dollar benefit of the system to Drugs’R Us?
Drugs ‘R Us operates a mail order pharmaceutical business on the
West Coast. The firm receives an
average of $325,000 in payments per day. On average, it takes four
days for the firm to receive payment,
from the time customers mail their checks to the time the firm
receives and processes them. A lockbox
system that consists of ten local depository banks and a
concentration bank in San Francisco would cost
$6,500 per month. Under this system, customers’ checks would be
received at the lockbox locations one
day after they are mailed, and the daily total would be wired to
the concentration bank at a cost of $9.75
each. Assume that the firm can earn 10 percent on marketable
securities and that there are 260
working days and hence 260 transfers from each of the ten lockbox
locations per year.
b. What is the dollar benefit of the system to Drugs’R Us?
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