Your Company Is Thinking of Installing a Lockbox System in Toronto

question 238

Multiple Choice

Your company is thinking of installing a lockbox system in Toronto to collect payments from the Western Provinces. The collection time is currently five days and would be reduced to three days if the system is installed. Daily interest on T-bills is.015%. The average number of daily payments is 650 and the average cheque size is $250. If the bank charges 6' per cheque, should the company get the lockbox?

• A) Yes, because the NPV is $97,500.
• B) Yes, because the NPV is $65,000.
• C) Since the NPV is zero, the firm is indifferent.
• D) No, because the NPV is -$65,000.
• E) No, because the NPV is -$97,500.

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Definitions:

Social Contract

A theory in political philosophy suggesting that the legitimacy of authority comes from an implicit agreement between the governing and the governed.

Legitimacy

The general belief that a rule, institution, or leader has the right to govern or dictate.

Authority

The power or right to give orders, make decisions, and enforce obedience.

Ancient Greeks

A civilization belonging to a period of Greek history that lasted from the Dark Ages (about 1200 BCE) to the end of antiquity (circa 600 AD) and contributed significantly to language, politics, educational systems, philosophy, science, and the arts.