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    Calculating the minimum number of transactions per day

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    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?

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    Solution Preview

    Let the number of transactions per day be x
    Average Daily remittance = 4800*x= 4800x
    Reduction in collection time=1 day
    Float reduction = daily ...

    Solution Summary

    This solution depicts the methodology to estimate the minimum number of customers needed to make proposed lock box system viable.