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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?
Exercise Price
The price at which the holder of an options contract may buy or sell the underlying security.
Call Decreases
The process wherein the value of a call option drops due to factors like a decrease in the price of the underlying asset or closer expiration.
Value
The quantitative or qualitative worth, importance, or usefulness of something.
Black-Scholes
A mathematical model used to price European call and put options, evaluating the options based on the stock price, strike price, volatility, expiration time, and risk-free interest rate.
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