Burke Corporation is investigating a lockbox system to reduce its collection time. It has determined that on average, there are 900 payments with an average value of $425 each. If a lockbox system
Is implemented, the lockbox fee per transaction will be $0.15. If the collection time can be reduced
By 4 days, and the daily interest on money market securities is .02%, then determine net present
Value of adopting the system.

Question

Quizplus · Accepted Answer

The net present value is calculated by considering the reduction in collection time, the interest earned, and the cost of the lockbox system. The reduction in collection time is 4 days, with 900 payments of $425 each, leading to a total of $1,530,000. The interest earned over 4 days at 0.02% daily is $1,530,000 * 0.0002 * 4 = $1,224. The cost of the lockbox system is 900 payments * $0.15 = $135. The net benefit is $1,224 - $135 = $1,089. The net present value is approximately $855,000.

Burke Corporation Is Investigating a Lockbox System to Reduce Its