Your firm has an average receipt size of $125. A bank has approached you concern
ID: 3403925 • 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 .016 percent. The bank charges a lockbox fee of $175 per day
What is the NPV of accepting the lockbox agreement? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
NPV $__________
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 answer to 2 decimal places, e.g., 32.16.)
NET ANNUAL SAVING $____________
What is the NPV of accepting the lockbox agreement? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
NPV $__________
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 answer to 2 decimal places, e.g., 32.16.)
NET ANNUAL SAVING $____________
Explanation / Answer
Solution :
7000 x 125 = 875,000 x 2 = 1,750,000
PV of costs = 175 x / 0.00016 = 1,093,750
NPV = 1,750,000 – 1,093,750 = 656,250
Hence, the NPV of accepting the lockbox agreement is 656,250
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