Eagle Industries feels that a lockbox system can shorten its accounts receivable collection period by 3 days. Credit sales are $3,240,000 per year, billed on a continuous basis. The firm has other equally risky investments with a return of 15%. The cost of the lockbox system is $9,000 per year.
a.What amount of cash will be made available for other uses under the lockbox system?
b.What net benefit (cost) will the firm receive if it adopts the lockbox system? Should it adopt the proposed lockbox system?