The Stetson Co. receives an average of 340 checks a day. The average amount per check is $750. 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.006 %. What is the amount of 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 value of checks received daily, which is 340 checks * $750 = $255,000. Reducing the collection time by 2 days means this amount can be invested 2 days earlier, earning daily interest. The daily interest savings are $255,000 * 0.006% * 2 = $30.60.