Century Corporation uses a continuous billing system that results in average dialy receipts of $600,000. The company treasurer estimates that a proposed lock-box system could reduce its collection time by 2 days.
a. How much cash would the lock-box system free up for the company?
b. What is the maximum amount that Century Corp. would be willing to pay for the lock-box system?
c. If the lock-box system could be arranged at an annual cost of $40,000, what would the net gain from instituting the lock-box system be?