Cow Chips, Inc., a large fertilizer distributor based in California, is planning
ID: 2643977 • Letter: C
Question
Cow Chips, Inc., a large fertilizer distributor based in California, is planning to use a lockbox system to speed up collections from its customers located on the East Coast. A Philadelphia-area bank will provide this service for an annual fee of $15,000 paid at the end of the year plus 10 cents per transaction. The estimated reduction in collection and processing time is one day. Treasury bills are currently yielding 5 percent per year. If the average customer payment in this region is $4,800, how many customers are needed, on average, each day to make the system profitable for Cow Chips? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
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Explanation / Answer
Annual Fee 15,000.00 Fees per day(15,000/365) 41.10 Other fees per transaction 0.10 Treasury Bills 5% Average Customer Payment 4,800.00 Average Savings per day (4,800*5%/365) 0.6575 Let number of customers be X 41.10 + .10X =.6575X 41.10 = .5575X X=74 74 customers are neeeded each day to break even thus more than 74 customers per day will make this system profitable Note: We have assumed 365 days each year.