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Calculating expected profit of using new system

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The Apollo Products Company currently collects all of its customer payments in Detroit. By going to a new lock box system with boxes in Los Angeles, Boston, and Atlanta, Apollo Products can reduce the total time it takes to convert customer payments into available funds by an average of 4.50 days. The firm collects an average of $95,000 per day. The extra costs associated with the lock box system are $28,500 per year. The opportunity cost of funds is 4.5% per year. What is the expected annual profit of using the new system?

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Solution Summary

Solution calculates the expected annual profit of using the new lock box system in the given case.

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Daily collections = $95000
Reduction in collection float=4.5 days
Float reduction = daily ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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