Anne Teak, the financial manager of a furniture manufacturer, is considering ope

Question

Anne Teak, the financial manager of a furniture manufacturer, is considering operating a lock-box system. She forecasts that 850 payments a day will be made to lock boxes with an average payment size of $2000. The bank's charge for operating the lock boxes is S0.30 a check. The interest rate is 0.010% per day. a. if the lock box makes the cash avalable 2 days earlier, calculate the net dally advantage of the system. (Do not round Intermedlete colculations.) Daily interest saved b. Is it worthwhile to adopt the system? O Yes O No C.What minimum reduction in the time to collect and process each check is needed to justify use of the lock-box system? (Do not round Intermediate celculations. Round your answer to 2 declmal pleces.) days Minimum reduction in time

Explanation / Answer

a.

The lockbox system provide 2 days earlier cash.

daily interest saving = $2,000 × 0.01%

= $0.20.

Daily Interest saving is $0.20.

b.

The lockbox system provide 2 days earlier cash and daily interest saving is $0.20 and interest saving in 2 days is $0.40. The cost of lockbox is $0.30. Since cost is less than total sacving. So she must use lockbox system.

c.

Minimum reduction in time = $0.30 / $0.20

= 1.50 days.

So , minimum reduction in time taken for clearing check is 1.50 days to justify lockbox system.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.