a company is investigating a lockbox system to reduce its collection time. It ha

Question

a company is investigating a lockbox system to reduce its collection time. It has determined the following: Average number of payments per day - 385. Average value of payment - $975. Variable lockbox fee per transaction - $.35 Daily interest rate on money market securities - .068%. The total collection time will be reduced by 3 days if the lockbox system is adopted. What is the PV of adopting the system? What is the NPV of adopting the system? What is the net cash flow per day from adopting? Per check?

Explanation / Answer

Money saved is 3 * 385 * 974 * 0.068 / 100 = 764.98

Cost of the system = 3 * 385 * 0.35 = 404.25

Hence PV of the system is 764.98 - 404.25 = 360.73

Net cash flow is $360.73

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