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Your firm has an average receipt size of $155. A bank has approached you concern

ID: 2707477 • Letter: Y

Question

Your firm has an average receipt size of $155. A bank has approached you concerning a lockbox service that will decrease your total collection time by one day. You typically receive 5,700 checks per day. The daily interest rate is 0.018 percent. The bank charges a lockbox fee of $115 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))

  
     

What is the NPV of accepting the lockbox agreement? (Round your answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

Your firm has an average receipt size of $155. A bank has approached you concerning a lockbox service that will decrease your total collection time by one day. You typically receive 5,700 checks per day. The daily interest rate is 0.018 percent. The bank charges a lockbox fee of $115 per day.


Total Amount collected = 5700 x 155 = 883500

PV of costs = 115 + (883500 / 1.00018) = 883456

NPV = 883500

What is the NPV of accepting the lockbox agreement? (Round your answer to 2 decimal places. (e.g., 32.16))



Total Amount collected = 5700 x 155 = 883500

PV of costs = 115 + (883500 / 1.00018) = 883456

NPV = 883500

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