Your firm has an average receipt size of $130. A bank has approached you concern

Question

Your firm has an average receipt size of $130. A bank has approached you concerning a lockbox service that will decrease your total collection time by two days. You typically receive 7,200 checks per day. The daily interest rate is 0.018 percent. The bank charges a lockbox fee of $185 per day.

What would the net annual savings be if the service were adopted? (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

1 Avg. receipt size $ 130 2 Checks per day 7200 3 Lockbox fee $ 185 4 Interest rate 0.018% 5 Collection savings on any day $ 151.960 2x(#4 x #2 x #1) - #3 NPV $ 844,222.22 (#5/#4) Net annual savings $ 55,465.40 (#5 x 365)

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