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 900 payments a day will be made to lock boxes with an average payment size of $2,000. The bank’s charge for operating the lock boxes is $.30 a check. The interest rate is .014% per day.

If the lock box makes the cash available 2 days earlier, calculate the net daily advantage of the system. (Do not round intermediate calculations.)

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 calculations. Round your answer to 2 decimal places.)

Anne Teak, the financial manager of a furniture manufacturer, is considering operating a lock-box system. She forecasts that 900 payments a day will be made to lock boxes with an average payment size of $2,000. The bank’s charge for operating the lock boxes is $.30 a check. The interest rate is .014% per day.

Explanation / Answer

Daily interest saved

900*2,000*2 *.014%   = $504

a-2) Yes

since bank charges per day is 900*.30 = 270 and saving of $504 is more

b) let days be x

(900*2000*x*.014%) = 270

X = 1.07 days save

( breakeven will occur at the point where interest save equals bank charges)

Daily interest saved

900*2,000*2 *.014%   = $504

a-2) Yes

since bank charges per day is 900*.30 = 270 and saving of $504 is more

b) let days be x

(900*2000*x*.014%) = 270

X = 1.07 days save

( breakeven will occur at the point where interest save equals bank charges)

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