West Ridge Wholesalers receives an average of 120 cheques a day. The average amount per cheque is $6,400. The firm is considering a lockbox system which it anticipates will reduce the average collection time by 2 days. The daily interest rate on Treasury bills is.01 %. What is the expected daily savings of the lockbox system?

Question

Quizplus · Accepted Answer

The expected daily savings from the lockbox system can be calculated by first determining the total amount of money that will be made available 2 days earlier due to the system. This is done by multiplying the average number of cheques received daily (120) by the average amount per cheque ($6,400), which gives $768,000. Then, multiply this amount by the daily interest rate (.01%) to find the daily interest savings: $768,000 * 0.0001 = $76.80. Since the collection time is reduced by 2 days, we multiply the daily savings by 2: $76.80 * 2 = $153.60.

West Ridge Wholesalers Receives an Average of 120 Cheques a Day