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

question 376

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.
Should Arshadi Wineries purchase the system?

• A) Yes, because the NPV is $63,000.
• B) Yes, because the NPV is $18,000.
• C) Since the NPV is zero, the firm is indifferent.
• D) No, because the NPV is -$18,000.
• E) No, because the NPV is -$63,000.