Your firm has an average receipt size of $170. A bank has approached you concern

Question

Your firm has an average receipt size of $170. A bank has approached you concerning a lockbox service that will decrease your total collection time by one day. You typically receive 5,500 checks per day. The daily interest rate is 0.017 percent. The bank charges a lockbox fee of $130 per day.

Your firm has an average receipt size of $170. A bank has approached you concerning a lockbox service that will decrease your total collection time by one day. You typically receive 5,500 checks per day. The daily interest rate is 0.017 percent. The bank charges a lockbox fee of $130 per day.

Explanation / Answer

5,500 x 170 = 935000

PV of costs = 130 x / .00017 = 764705.88

NPV = 935000

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