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 the net cash flow per cheque from adopting the system.

Question

Quizplus · Accepted Answer

The net cash flow per check from adopting the system is $0.19. This is calculated as follows:Interest earned per check = (Average value of payment * Daily interest rate * Reduction in collection time) = ($425 * 0.02% * 4) = $0.034Lockbox fee per check = $0.15Net cash flow per check = Interest earned per check - Lockbox fee per check = $0.034 - $0.15 = $0.19

Burke Corporation Is Investigating a Lockbox System to Reduce Its