Linkup Systems, Which Provides Investors with Computerized Information About Stock

question 58

Essay

Linkup Systems, which provides investors with computerized information about stock prices, is considering the establishment of a lockbox system with its bank. The firm receives daily collections of $2.0 million, and could earn 6% on any funds freed up through faster collections. If the lockbox system can save two days in the collection process, and the firm's bankers will charge $200,000 per year to operate the lockbox system, is it worth it to establish the system?

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Definitions:

Raw Materials

Basic materials that are used in the initial stages of production and manufacturing processes.

Invoice

Bill for goods or services provided by the seller to the purchaser.

Bill

A short-term debt instrument issued by a government as a means of borrowing money with a maturity of less than a year.

Goods

Physical items that are produced, bought, or sold with the aim to satisfy the wants or needs of consumers.