Lockbox System – Garden Groves, Inc.
Garden Groves, Inc., a Florida-based company, has determined that the majority of its customers are located in the New York City area. Therefore, it is considering using a lock box system offered by a bank located in New York. The bank has estimated that use of the system will reduce collection float by three dates. Based on the following information, should the lock box system be adopted?
– Average number of payments per day: 150
– Average value of payment: $15,000
– Fixed annual lock box fee: $80,000
– Variable lock box fee: $0.50/transaction
– Annual interest rate on money-market securities: 7.5 percent