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 day from adopting the system.

Question

Quizplus · Accepted Answer

The net cash flow per day is calculated by determining the interest earned from the reduced collection time and subtracting the lockbox fees. The interest earned is 900 payments * $425 * 0.0002 * 4 days = $306. The lockbox fee is 900 payments * $0.15 = $135. The net cash flow per day is $306 - $135 = $171.

Burke Corporation Is Investigating a Lockbox System to Reduce Its