Your firm has an average receipt size of $120. A bank has approached you concern
ID: 2634234 • Letter: Y
Question
Your firm has an average receipt size of $120. A bank has approached you concerning a lockbox service that will decrease your total collection time by two days. You typically receive 6,800 checks per day. The daily interest rate is 0.017 percent. The bank charges a lockbox fee of $170 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))
Net annual savings $
What is the NPV of accepting the lockbox agreement? (Round your answer to 2 decimal places. (e.g., 32.16))Explanation / Answer
Average Size of Receipt (A) $ 120.00 Daily Checks (B) 6800 Total Daily Receipts (C=A x B) $816,000.00 Collection Time reduced Days (D) 2 Ineterest Saved on daily receipt(E=C x D x 0.017%) $ 277.44 Cost of lockbox (F) $ 170.00 Daily Savings (E-F) $ 107.44 Annual $ 39,215.60
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