Roze Corporation is investigating a lockbox system to reduce its collection time. It has determined that on average, there are 405 payments with an average value of $1,200 each. If a lockbox system
Is implemented, the lockbox fee per transaction will be $0.65. If the collection time can be reduced
By 4 days, and the daily interest on money market securities is .03%, then determine the net
Present value of adopting the system.

Question

Quizplus · Accepted Answer

The net present value is calculated by determining the benefit from reduced collection time and subtracting the cost of the lockbox system. The benefit is the interest earned on the reduced collection time: 405 payments * $1,200 * 4 days * 0.03% = $583,200. The cost is the lockbox fee: 405 payments * $0.65 * 4 days = $1,053. The net benefit is $583,200 - $1,053 = $582,147. Adding this to the initial cash flow of $1,066,500 gives a net present value of $1,066,500.

Roze Corporation Is Investigating a Lockbox System to Reduce Its