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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 2 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?
Yield To Maturity
The total return anticipated on a bond if it is held until its maturity date, taking into account its purchase price, interest payments, and terminal value.
Zero-coupon Bonds
Bonds that do not pay periodic interest payments and are instead issued at a deep discount to their face value, maturing at par.
Treasury Bill
A Treasury Bill (T-Bill) is a short-term government debt obligation backed by the Treasury Department with a maturity of one year or less.
Par Value
The nominal or face value of a bond, share of stock, or coupon as indicated on a certificate or instrument.
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