An Introduction to Management Science 13th Edition by David Anderson,Dennis Sweeney ,Thomas Williams ,Jeffrey Camm, Kipp Martin

Exercise 9

YEAGER NATIONAL BANK
Using aggressive mail promotion with low introductory interest rates, Yeager National Bank (YNB) built a large base of credit card customers throughout the continental United States. Currently, all customers send their regular payments to the bank's corporate office located in Charlotte, North Carolina. Daily collections from customers making their regular payments are substantial, with an average of approximately $600,000. YNB estimates that it makes about 15 percent on its funds and would like to ensure that customer payments are credited to the bank's account as soon as possible. For instance, if it takes five days for a customer's payment to be sent through the mail, processed, and credited to the bank's ac-count YNB has potentially lost five days' worth of interest income. Although the time needed for this collection process cannot be completely eliminated, reducing it can be beneficial given the large amounts of money involved
Instead of having all its credit card customers send their payments to Charlotte, YNB is considering having customers send their payments to one or more regional collection centers, referred to in the banking industry as lockboxes. Four locations have been proposed: phoenix Salt Lake City, and Boston. To determine which lockboxes to open and where lockboxes customers should send their payments, YNB divided its customer base into five geographical regions: Northwest, Southwest Central, Northeast, and south same lockbox. The following table shows the average number of days it takes before a customer's payment is credited to the bank's account when the payment is from each of the regions to each of the potential lockboxes:
Managerial Report
Dave Wolff, the vice president for cash management, asked you to prepare a report containing your recommendations for the number of lockboxes and the best lockbox locations. Mr. Wolff is primarily concerned with minimizing lost interest income, but he wants you to also consider the effect of the fee charged for maintaining a lockbox at any location. Although the amount of the fee is unknown at this time, we can assume that the fees will be in the range of $20,000 to $30,000 per location. Once good potential locations have been selected, Mr. Wolff will inquire as to the annual fees.