Your firm has an average receipt size of $125. A bank has approached you concern
ID: 2701576 • Letter: Y
Question
Your firm has an average receipt size of $125. A bank has approached you concerning a lockbox service that will decrease your total collection time by two days. You typically receive 7,000 checks per day. The daily interest rate is 0.016 percent. The bank charges a lockbox fee of $175 per day.
What would the net annual savings be if the service were adopted? (Use 365 days a year)
Your firm has an average receipt size of $125. A bank has approached you concerning a lockbox service that will decrease your total collection time by two days. You typically receive 7,000 checks per day. The daily interest rate is 0.016 percent. The bank charges a lockbox fee of $175 per day.
What would the net annual savings be if the service were adopted? (Use 365 days a year)
All of the answers to this question already on the website seem to be wrong, or the solutions are written incorrectly.
Explanation / Answer
Daily Abge Rxpts = 7000*125 = 875000
SO for 2 days, Avge Rxots = 875000*2 = 1,750,000
PV of costs = 175/0.016% = 1,093,750
So NPV = 1,750,000 %u2013 1,093,750 = $656,250
Annual savings = 1750000*(1+0.016%)^365 - 1750000 = $105,235
Annual cost = $175* FV(Rate,nper,pmt)
= 175*FV(0.016%,365,-1) = $65,772
So Annual net savings = 105235-$65,772 =$39,463 if service is adapted.
Recomendatiion : Yes. Accept the Lockbox service
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