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A nationwide distributor of furniture hardware

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Knob, Inc., is a nationwide distributor of furniture hardware. The company now uses a central billing system for credit sales of $241.20 million annually. First National, Knob's principal bank, offers to establish a new concentration banking system for a flat fee of $270,000 per year. The bank estimates that mailing and collection time can be reduced by four days.

a. By how much will Knob's cash balances be increased under the new system? (Enter your answer in dollars not in millions.)

Increase in cash balance $

b. Assume that the borrowing rate is 14%. How much extra interest income will the new system generate if the extra funds are used to reduce borrowing under Knob's line of credit with First National? (Enter your answer in dollars not in millions.)

Total cost $

c. Calculate the total cost of old system if collection costs under the old system are $57,000 per year? (Enter your answer in dollars not in millions.)

Reference no: EM13488277

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