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

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 6,700 checks per day. The daily interest rate is .016 percent. The bank charges a lockbox fee of $120 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 $ 288500

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 savings $

Net annual Savings:

Explanation / Answer

Having a positive NPV so it should be implemented

Cash outflow (120*365) -43800 Savings 60648.4 NPV $12,756.96 Annual Saving saving of interest cost of availing lock box facility Annual Saving 60648.4 43800 16848.4 Rough work per transaction Value No of transaction Turnover 155 6700 1038500 Cost of Interest for one day for a year 60648.4 Annual interest rate 5.84 Cost of lock box 43800

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