Arshadi Wineries Is Considering the Purchase of Lockbox Services from Bob's

question 306

Multiple Choice

Arshadi Wineries is considering the purchase of lockbox services from Bob's Bank. Currently, it takes six days to collect funds from customers; this would be reduced by two days with the lockbox system. The average number of payments received per day is 300 and the average cheque size is $150. Bob's will charge 5'per cheque in return for operating the lockbox system. Assume one-year T-bills yield 5%, and use a 360-day year. Suppose one-year T-bills yield 6%. Should Arshadi Wineries purchase the system?

• A) Yes, because the NPV is $54,000.
• B) Yes, because the NPV is $28,000.
• C) Since the NPV is zero, the firm is indifferent.
• D) No, because the NPV is -$28,000.
• E) No, because the NPV is -$54,000.

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Definitions:

Infrastructure

The resources (people, technology, products, suppliers, partners, facilities, cash, etc.) that an entrepreneur must have in order to deliver the Customer Value Proposition (CVP).

Financial Viability

Defines the revenue and cost structures a business needs to meet its operating expenses and financial obligations.

Facilities

Physical locations and structures that are designed to support and conduct various types of activities, such as sports, education, or business operations.

Offering

Refers to a product, service, or investment opportunity presented to the market by a business or individual.