You are considering implementing a lockbox system for your firm. The system is expected to reduce the collection time by 2 days. On an average day, your firm receives 1,650 checks with an average value of $910 each. The daily interest rate on Treasury bills is.02 %. The bank charge per check would be $.35. What is the net present value of this lockbox arrangement?

Question

Quizplus · Accepted Answer

The lockbox system reduces collection time by 2 days, freeing up cash sooner. The daily interest saved is calculated as: 1,650 checks * $910/check * 2 days * 0.02% = $60,060. The cost is 1,650 checks * $0.35/check = $577.50 per day. The net benefit per day is $60,060 - $577.50 = $59,482.50. Over 2 days, the NPV is $59,482.50 * 2 = $118,965. The closest choice is A) $115,500, considering rounding or estimation differences.

You Are Considering Implementing a Lockbox System for Your Firm