Howton Mining expects to have credit sales of $8,000,000 this year. First National Bank is offering Howton
Mining a lock-box system for $1,200 per month. Howton Mining estimates that the new lock-box system will
reduce float by 4.5 days.
What rate of return must Howton Mining earn on its marketable securities to make it
worthwhile for the company to institute this lock-box system? Use a 365-day year.
Rate of return earned on marketable securities
Income = $8,000,000
365 × 4. 5 days × rate = $1,200 × 12
Rate of Return = $14,400
[($8,000,000/365 × 4. 5)] =
$14,400
$98,630 = .146
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